Enel Americas
Annual Report 2003

Plain-text annual report

Enersis Management CHAIRMAN Pablo Yrarrázaval Phone (56-2) 353 4663 CHIEF EXECUTIVE OFFICER Mario Valcarce Phone (56-2) 353 4613 REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Phone (56-2) 353 4684 REGIONAL FINANCIAL OFFICER Alfredo Ergas Phone (56-2) 630 9587 REGIONAL ACCOUNTING OFFICER Fernando Isac Phone (56-2) 353 4685 COMMUNICATIONS OFFICER José L. Domínguez Phone (56-2) 353 4666 AUDITING OFFICER Francisco Herrera Phone (56-2) 353 4647 HUMAN RESOURCES OFFICER Francisco Silva Phone(56-2) 353 4610 GENERAL COUNSEL Domingo Valdés Phone (56-2) 353 4631 Investor and Shareholder Relations CHIEF INVESTMENTS AND RISKS OFFICER Ricardo Alvial Phone (56-2) 353 4682 CITIBANK NY Ricardo Szlezinger Phone (1-212) 657 7533 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 www.enersis.cl Santa Rosa 76, Santiago-Chile (56 2) 353 4400 - (56 2) 378 4400 Fax: (56 2) 378 4788 2003 annual report Enersis generated energy 42,929 GWh +4.6% i s s r e n E t r o p e r l a u n n a 3 0 0 2 debt reduction US$ 2,573 million -28.7% distribution sales 49,677 GWh +4.2% S A N T I A G O S T O C K E X C H A N G E ENERSIS N E W Y O R K S T O C K E X C H A N G E ( N Y S E ) ENI L A T I N A M E R I C A N S T O C K E X C H A N G E O F M A D R I D S T O C K E X C H A N G E ( L A T I B E X ) XENI ENI LISTED NYSE Enersis Management CHAIRMAN Pablo Yrarrázaval Phone (56-2) 353 4663 CHIEF EXECUTIVE OFFICER Mario Valcarce Phone (56-2) 353 4613 REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Phone (56-2) 353 4684 REGIONAL FINANCIAL OFFICER Alfredo Ergas Phone (56-2) 630 9587 REGIONAL ACCOUNTING OFFICER Fernando Isac Phone (56-2) 353 4685 COMMUNICATIONS OFFICER José L. Domínguez Phone (56-2) 353 4666 AUDITING OFFICER Francisco Herrera Phone (56-2) 353 4647 HUMAN RESOURCES OFFICER Francisco Silva Phone(56-2) 353 4610 GENERAL COUNSEL Domingo Valdés Phone (56-2) 353 4631 Investor and Shareholder Relations CHIEF INVESTMENTS AND RISKS OFFICER Ricardo Alvial Phone (56-2) 353 4682 CITIBANK NY Ricardo Szlezinger Phone (1-212) 657 7533 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 www.enersis.cl Santa Rosa 76, Santiago-Chile (56 2) 353 4400 - (56 2) 378 4400 Fax: (56 2) 378 4788 2003 annual report Enersis generated energy 42,929 GWh +4.6% i s s r e n E t r o p e r l a u n n a 3 0 0 2 debt reduction US$ 2,573 million -28.7% distribution sales 49,677 GWh +4.2% S A N T I A G O S T O C K E X C H A N G E ENERSIS N E W Y O R K S T O C K E X C H A N G E ( N Y S E ) ENI L A T I N A M E R I C A N S T O C K E X C H A N G E O F M A D R I D S T O C K E X C H A N G E ( L A T I B E X ) XENI ENI LISTED NYSE table of contents 2 L E T T E R F R O M T H E C H A I R M A N O F T H E B O A R D 6 I N F O R M AT I O N O N T H E C O M P A N Y 1 0 O W N E R S H I P A N D C O N T R O L 1 7 B O A R D O F D I R E C T O R S 2 2 O R G A N I Z AT I O N A L S T R U C T U R E 2 3 M A N A G E M E N T 2 6 A C T I V I T I E S 3 0 B U S I N E S S 3 5 I N V E S T M E N T A N D F I N A N C I N G P O L I C Y 3 6 E V O L U T I O N O F T H E F I N A N C I A L S TAT E M E N T S 3 7 C O R P O R AT E S T R U C T U R E 3 8 E V O L U T I O N O F T H E O P E R AT I N G D ATA 4 1 G E N E R A T I O N 4 3 E N D E S A C H I L E 4 9 E N D E S A F O R TA L E Z A 5 3 D I S T R I B U T I O N 5 5 C H I L E C T R A 6 1 E D E S U R 6 7 E D E L N O R 7 3 C E R J 7 9 C O E L C E 8 5 C O D E N S A 9 1 O T H E R B U S I N E S S E S 9 3 S Y N A P S I S 9 9 C A M 1 0 5 M A N S O D E V E L A S C O 1 1 0 L I A B I L I T Y S TAT E M E N T 1 1 1 O T H E R S U B S I D I A R I E S A N D R E L AT E D C O M P A N I E S F I N A N C I A L S T A T E M E N T S 1 1 3 C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S O F E N E R S I S 2 4 3 U N C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S O F E N E R S I S 2 8 7 F I N A N C I A L S TAT E M E N T S O F S U B S I D I A I R E S letter from the chairman of the board Dear Shareholder: The year 2003 shall be remembered for its intense and successful financial activity. In order to appreciate the magnitude of what I am pleased to present you with the Annual Report corresponding was done, we must highlight that throughout the year, the Enersis to the performance of the Enersis Group for the year 2003. Group carried out multiple operations for approximately US$ 7,000 million, which is the equivalent to some 20% of the foreign debt of Before I go on to the summary of the activities of the Group during last this country. year, I must remind you of the situation that we have had to face in recent times. Our results have been seriously affected by a crisis that touched The step to refinance US$ 4,018 million was completed utilizing and still touches upon our region, and especially upon several countries various alternatives such as new syndicated loans, bond issues on the in which we possess important investments, having a significant impact local and international markets, pre-payment of bank debts and other 2 on the electricity business and, consequently, on our liquidity. operations. In this context, Enersis took advantage of the improved market conditions to refinance its debt at very favorable rates and In these circumstances, Enersis was forced to implement what was this allowed it to obtain important savings in terms of future interest called “The Financial Strengthening Plan”, launched in October, 2002 that payments. These operations permitted the booking of Enersis’ debt with sought not only to strengthen our companies and reduce the risks for the a payment schedule in line with the generation of cash by the Group. investors, but also to reinforce the financial and equity situation of Enersis, recovering in this way, the confidence of the financial markets. On the other hand, the divestment of assets achieved the best expectations as the prices offered were within the top level expected. As was decided, this plan contained three fundamental pillars, each In total, assets were sold for US$ 757 million, including the Canutillar with a clear target announced at the time: Refinance the short and Power Plant and the Compañía Eléctrica del Río Maipo S.A. distribution medium term debt of US$ 2,300 million; strengthen the equity base by company, excellent assets that had to be disposed of as a result of means of a capital increase of US$ 2,000 million; and the sale of assets the liquidity requirements of the Company. Given the adverse market for a figure in the region of US$ 900 million, including their debts. conditions, the most attractive assets were those located in Chile. Enersis / 2003 annual report of which corresponded to the capitalization of debts of US$ 1,219 million made by the controlling shareholder and US$ 799 million provided by the minority shareholders, reaffirming their confidence in the future of the Company. All this led to Latin America’s largest capital increase in recent history. Nevertheless, I must point out that the 175 MW of installed capacity All together, these operations permitted not only the extension of of the Canutillar hydroelectric power plant that was sold, will be amply the maturity curve of Enersis’ debt but also a substantial reduction in the exceeded by the 570 MW capacity of the new Ralco power plant which financial debt of the Group, from US$ 8,980 million at the end of 2002 will come on stream during this year 2004. This is not considering the 310 to US$ 6,407 million as of the close of the 2003 period, strengthening 3 MW capacity of the new Endesa Fortaleza thermoelectric power plant in in a decisive manner the financial situation of the Company. the northeast of Brazil, which has been in operation since January 2004 and in which Enersis holds 49% of the ownership. With respect to the sale These operations also brought with them an improved risk of the Río Maipo distribution company, I should mention that in 2003 perception of the Company which, together with the recovery in demand the number of distribution clients rose by 504,000, 1.5 times the size of for electricity in most of the areas under concession, is reflected in a the aforementioned distribution company. sustained growth in the liquidity of Enersis’ shares, both on the local and on the international markets and a sustained rise in share and ADR prices With regard to the capital increase, this exceeded even the most which, during 2003, increased by 49% and 80%, respectively. optimistic expectations. In this respect, we must recall that when we launched this operation, stock markets were still very depressed and some With regard to the results for the year 2003, Enersis showed a sectors were more than skeptical about our possibilities of obtaining the profit of Ch$ 12,468 million which compares favorably with the loss of participation of the shareholders. In fact, this permitted the Company to Ch$ 225,985 million registered as of December, 2002. In this regard, increase its equity base by more than US$ 2,104 million, a significant part we should remember that this loss was fundamentally due to once only letter from the chairman of the board accounting adjustments in relation to the investments in Argentina and This period has also signified a new orientation in the way we perform Brazil and to the effects from the regional crisis. our activities. Enersis has been consolidated as the head of the Group and the fundamental depository of investors confidence. In turn, we have Net Operating Income amounted to Ch$ 531,098 million during this boosted its role as the financial holding company, retaining its part as period, reflecting a slight reduction due principally to the deconsolidation controller of Endesa Chile and Chilectra. These companies have become of the assets referred to above. I must point out the negative impact that the operating heads of the Generating and Distribution lines in Latin the important appreciation of the Chilean Peso against the US Dollar had America, with outstanding success. during the year as a consequence of the adjustment to Chilean norms on the application of Technical Bulletin Nº 64 issued by the Chilean College Not only the performance of our business has been successful. Today of Accountants. 4 we are able to confirm that our commitment with society has been widely recognized by the community with such projects as: “Illuminating Churches I must highlight the increase of 4% in physical sales in distribution, in America”, which has provided more than 30 temples in Chile, Colombia reaching 49,677 GWh and a rise of 5% in the sales of generated energy and Peru with modern ornamental illumination; libraries for the remote amounting to a total of 51,053 GWh, which is consistent with the pace of communities in the country, with which, together with the El Mercurio the economic recovery of most of the countries in which the Enersis Group newspaper, we have provided over three thousand books; The Energy operates and which permits us to assume that there will be a sustained Information Center open to children and youths in the country where they improvement in the level of sales in 2004. can learn, in an interesting and educational way, about the use and forms of energy; and other support activities in different cultural areas. These two elements, together with the strengthening of the currencies, are the most important when evaluating our main business, Furthermore, Enersis was awarded the “Heritage Prize” granted by the its projections and perspectives. Corporación de Patrimonio Cultural de Chile, in recognition of its sustained commitment in matters of Corporate Social Responsibility. Enersis / 2003 annual report Likewise, we have continued with a constant effort to maintain order to further improve the quality of service and customer attention. all our investors and shareholders fully informed. For this purpose we We shall also continue in our pursuit of a fair return to our shareholders have restructured our Web Page with a change in design, content and who have placed their confidence in our Company. technology. This has been acknowledged by a jury of specialists from the capital markets who awarded Enersis a prize for first place in the “Best Yours faithfully, Investor Relations Website” category for the “Southern Cone, Andean Region and Bermuda” for its technical criteria. Today, the Company possesses a solid base for future projections, not only in Chile, but also in the rest of Latin America. Thus, for the year 2004, we hope to invest some US$ 500 million, resources required for the conclusion of the generating projects under development and for investments required for the natural growth of the business. In addition, we are taking all the steps necessary to reduce and curtail the regulatory risks in relation to our business in Brazil and Argentina in order to obtain the expected return . Pablo Yrarrázaval Chairman Enersis S.A. Finally, I wish to convey to our shareholders that the effort we have made has been of significant importance, but at the same time, I wish to leave on record our firm desire not to fail in our commitment to preserve and enhance our leadership in the Latin American electricity sector in letter from the chairman of the board 5 Enersis INFORMATION ON THE COMPANY Corporate Name: ENERSIS S.A. Type of Company Limited Liability Stock Company Tax Register Number 94.271.000.3 Address Santa Rosa Nº 76, Piso 17, Santiago, Chile Postal Code 833-0099 Santiago Telephones (56-2) 353 4400, (56-2) 378 4400 Fax (56-2) 378 4788 Articles of Incorporation and By-laws Businesses of the Property Register of Santiago on page The company that gave rise to Enersis S.A. was 13,099 Nº 7,269 of the year 1981 and was published originally established as Compañía Chilena in the Official Gazette on July 23, 1981 To date, the Metropolitana de Distribución Eléctrica S.A., by-laws have been the subject of various amendments. as recorded in a public deed of June 19, 1981, On August 1, 1988 the company changed its name to executed before Patricio Zaldívar, Notary Public Enersis S.A. The latest amendment is recorded in the 6 in the city of Santiago and amended by public public deed dated April 9, 2003 granted before Patricio deed of July 13 of the same year before the Zaldívar, Notary Public in Santiago. The extract was same Notary Public mentioned above The recorded in the Register of Businesses of the Property existence of the Company was authorized and its Register of Santiago on page 11,109, Nº 8,665 of the by-laws were approved pursuant to Resolution Business Register of 2003 and published in the Official No 409-S of July 17, 1981 of the Superintendency Gazette on April 29, 2003 of Securities and Insurance. The extract of the Historic overview existence authorization and the approval of The origins of Enersis S.A. date back to June 19, 1981 the by-laws were recorded in the Register of when Compañía Chilena de Electricidad S.A. Enersis / 2003 annual report P.O.Box 1557, Santiago Web Site www.enersis.com E-mail address comunicacion@e.enersis.cl Securities Register Number Nº 175 External Auditors Deloitte & Touche Number of Shares 32,651,166,465 Number of Shareholders 10,294 Paid-in Capital (ThCh$) 2,227,711,340 Reference Name on Chilean Stock Markets ENERSIS Depository Bank ADR Program Citibank N.A. Reference Name on NYSE ENI Latibex Custodian Bank Banco Santander Reference Name on Madrid Stock Market XENI Latibex Liaison Entity Santander Central Hispano Investment S.A. ADRs Custodian Bank Banco de Chile Local Risk Rating Companies Feller Rate, Fitch, Humphreys International Risk Rating Companies Fitch, Moody´s, Standard & Poor´s was restructured into a parent company and three fact that the company was devoted exclusively to the subsidiaries. One of these was Compañía Chilena distribution of electricity. In 1987, the Board of Directors Metropolitana de Distribución Eléctrica S.A. In proposed a division of the various activities of the 1985, as a result of the privatization policy enacted for parent company. Thus, four subsidiaries were formed state-owned companies by the Government of Chile, enabling them to be run as separate business units, the transfer of the capital stock of Compañía Chilena each with its own objectives and in this way expanding Metropolitana de Distribución Eléctrica S.A. to the the activities of the company into other non-regulated 7 private sector began. This process concluded on August businesses, though still related to the core business 10, 1987. Through this process, private pension funds This proposal was approved by the Extraordinary (A.F.P.), the company’s workers, institutional investors Shareholders’ Meeting held on November 25, 1987, and thousands of small investors became stockholders which determined its new corporate purpose As a of the Company The organizational structure was result of the above, Compañía Chilena Metropolitana based upon operating activities or functions in which de Distribución Eléctrica S.A. became an investment the achievements were evaluated on functions and its company. On August 1, 1988, under a resolution adopted profitability was limited by a scheme of tariffs, due to the by the Shareholders’ Meeting held on April 12, 1988, the information on the company Company changed its corporate name to Enersis S.A. Corporate Purpose Furthermore, for the purpose of providing a better The purpose of the company is to undertake both in quality of service to its customers, as of June 1, 1989, Chile and abroad, the management, development, approval was given for the division of the subsidiary, operation, generation, distribution, transmission, Distribuidora Chilectra Metropolitana S.A. into a transformation and/or sale of energy of whatever company that would continue in the business with form or nature, directly or through other companies, 8 the name Chilectra S.A. and a new company that was as well telecommunications activities and the established with the name Compañía Eléctrica del Río provision of engineering consultancy services, Maipo S.A., which currently serves the demand for the either in Chile or abroad. Its purpose will also be to distribution and sale of electric power in the rural and invest and manage the company’s investments in semi-urban zones of the Metropolitan Region of Chile subsidiaries or related companies that generate, The Extraordinary Shareholders’ Meeting held on transmit, distribute or sell electric power or that are April 27, 1994 approved the change of name of the involved in any of the following lines of business: (i) subsidiary Distribuidora Chilectra Metropolitana S.A. energy in any of its forms or of any nature, (ii) the to that of Chilectra S.A., effective as of June 1, 1994 supply of public services or companies having energy Enersis / 2003 annual report as their main raw material, (iii) telecommunications and legal and auditing advice and in general, services of information technology, (iv) intermediation business any nature that might appear necessary for its better through Internet. In the fulfillment of its main objective, performance In addition to its main objective and the company will develop the following functions: acting always within the bounds determined by the a) Promote, organize, establish, modify, dissolve or Investment and Financing Policy approved at the Ordinary liquidate companies of any nature, whose corporate General Meeting of Shareholders, the company may purpose is similar or related to those of the Company. invest in: a) The acquisition, management, construction, 9 b) Propose to its subsidiary companies policies on rental, intermediation, marketing and divestment of any investments, financing and marketing as well as kind of property and real estate, either directly or through accounting systems and criteria which they must subsidiary or related companies. b) All types of financial adhere to. c) Supervise the operations of its subsidiary assets, including shares, bonds and debentures, financial companies. d) Provide its subsidiary or related companies instruments and, in general, all types of securities and with the financial resources necessary to develop its capital investments in companies, either directly or business and, in addition, provide its subsidiaries with through subsidiary or related companies management services, financial, commercial, technical, information on the company ownership and control Ownership Structure Controllers The capital of the Company is divided into 32,651,166,465 shares Pursuant to Title XV of Law Nº 18,045, the controller of the Company, with no nominal value, all from a same and single series. Endesa S.A., Spain, possesses 60.62% of Enersis through the control the latter has over Endesa Internacional S.A. and Sociedad de Inversiones As of December 31, 2003 there were 32,651,166,465 shares subscribed Chispa Uno S.A. and paid-up, distributed over 10,294 shareholders. 10 Enersis / 2003 annual report The twelve largest shareholders of the Company As of December 31, 2003, Enersis was owned by 10,294 shareholders. The twelve largest were: Shareholders Tax Register Number Number of Shares Endesa Internacional S.A. Citibank N.A. (ADRs and Chapter XIV) AFP Provida S.A. AFP Cuprum S.A. AFP Summa Bansander S.A. AFP Santa María S.A. AFP Habitat S.A. Banchile Corredores de Bolsa S.A. Cía. de Seg. de Vida Consorcio Nacional de Seguros Bolsa Electrónica de Chile Bolsa de Valores Consorcio Corredores de Bolsa S.A. BCI Corredores de Bolsa S.A. Subtotal: 12 shareholders Others: 10,282 shareholders Total: 10,294 shareholders 59.072.610-9 97.008.000-7 98.000.400-7 98.001.000-7 98.000.600-K 98.000.000-1 98.000.100-8 96.571.220-8 99.012.000-5 96.551.730-8 96.772.490-4 96.519.800-8 19,794,583,473 3,131,712,672 2,054,685,902 912,855,104 729,762,948 691,869,309 679,461.335 673,750,034 213,109,789 178,161,247 168,087,039 150,826,312 29,378,865,164 3,272,301,301 32,651,166,465 % 60.62 9.59 6.29 2.80 2.24 2.12 2.08 2.06 0.65 0.55 0.51 0.46 89.98 10.02 100.00 Principal changes in ownership During 2003, the principal changes in the ownership of Enersis were: 11 Shareholders Endesa Internacional S.A. Citibank N.A. (ADRs and Chapter XIV) AFP Provida S.A. AFP Cuprum S.A. AFP Summa Bansander S.A. AFP Santa María S.A. AFP Habitat S.A. Banchile Corredores de Bolsa S.A. Cía. de Seg. de Vida Consorcio Nacional de Seguros Bolsa Electrónica de Chile Bolsa de Valores Consorcio Corredores de Bolsa S.A. BCI Corredores de Bolsa S.A. Larraín Vial S.A. Corredores de Bolsa Santander Investment Corredores de Bolsa Bolsa de Comercio de Santiago AFP Plantival BICE Corredores de Bolsa S.A. Celfin Cardeweg S.A. Corredores de Bolsa Compañía de Inversiones Chispa Uno S.A. Elesur S.A. Bancard S.A. Tax Register Number Number of Shares as of 31/12/2002 Number of Shares as of 31/12/2003 % Variation 59.072.610-9 97.008.000-7 98.000.400-7 98.001.000-7 98.000.600-K 98.000.000-1 98.000.100-8 96.571.220-8 99.012.000-5 96.551.730-8 96.772.490-4 96.519.800-8 80.537.000-9 96.683.200-2 90.249.000-0 98.000.900-9 79.532.990.0 84.177.300-4 96.641.060-4 96.800.570-7 96.894.180-1 694,591,189 328,916,750 255,812,109 178,611,688 91,054,355 150,793,071 323,304,197 178,368,323 61,996,453 18,274,684 42,267,412 27,866,141 72,983,101 8,832,648 47,995,976 30,275,201 9,361,088 32.272.220 1,780,246,340 2,914,325,536 91,338,455 ownership and control 19,794,583,473 2,749.82 3,131,712,672 2,054,685,902 912,855,104 729,762,948 691,869,309 679,461.335 673,750,034 213,109,789 178,161,247 168,087,039 150,826,312 138,605,309 138,085,786 135,192,884 129,016,633 122,996,154 110,658,803 34,666 - - 852.13 703.20 411.08 701.46 358.82 110.16 277.73 243.75 874.91 297.68 441.25 89.91 1,463.36 181.68 326.15 1,213.91 242.89 N/A N/A N/A Stock Exchange Transactions by Directors and Senior Executives The following are the stock exchange transactions carried out by the Directors and Senior Executives during the year 2003: Shareholder Tax Register Number Buyer/ Seller Date Transaction in Shareholders’ Register Number of Shares Traded Unit Price of Transaction (Ch$) Relationship with the Company Inversiones Santa Verónica Ltda. 79.880.230-5 Inversiones y Asesorías Sydarta Ltda. 78.133.360-3 Ernesto Silva Cristián Herrera 5.126.588-2 10.545.763-4 Inversiones Santa Verónica Ltda. 79.880.230-5 Rosario Alvial S. Ricardo Alvial S. Consuelo Alvial S. Ricardo Alvial M. María Elena Valdés María Elena Yrarrázabal Pablo Yrarrázabal Jorge Alé Jorge Alé 17.409.139-0 16.607.480-0 16.209.886-1 7.330.389-3 2.471.642-2 5.710.932-7 5.710.967-K 8.360.211-2 8.360.211-2 Inversiones y Asesorías Sydarta 78.133.360-3 Inversiones y Asesorías Sydarta 78.133.360-3 12 Ernesto Silva 5.126.588-2 Inversiones Santa Verónica Ltda. 79.880.230-5 Renzo Costa Rosario Alvial S. Ricardo Alvial S. Consuelo Alvial S. María Elena Valdés María Elena Yrarrázabal Pablo Yrarrázabal Cristián Herrera Jorge Alé Beatriz García Huidobro 7.353.051-2 17.409.139-0 16.607.480-0 16.209.886-1 2.471.642-2 5.710.932-7 5.710.967-K 10.545.763-4 8.360.211-2 6.981.877-3 Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer 7/5/03 1,500,000 63.6700 Related to Hernán Sommerville, Director 13/6/03 2,940,891 60.4202 Related to Ernesto Silva, Director 13/6/03 400,125 60.4202 Director 25/6/03 13,366 60.4202 Executive 25/6/03 4,411,337 60.4202 Related to Hernán Sommerville, Director 26/6/03 26/6/03 26/6/03 26/6/03 402 402 402 2 60.4202 Daughter of Executive 60.4202 Son of Executive 60.4202 Daughter of Executive 60.4202 Executive 27/6/03 399,958 60.4202 Related to Pablo Yrarrázaval, Chairman of the Board 27/6/03 362,447 60.4202 Related to Pablo Yrarrázaval, Chairman of the Board 27/6/03 362,447 60.4202 Chairman of the Board 30/6/03 8/10/03 62,370 62,370 60.4202 Executive 81.4900 Executive 22/10/03 2,940,891 86.7500 Related to Ernesto Silva, Director 2/12/03 2/12/03 3/12/03 10/12/03 17/12/03 17/12/03 17/12/03 19/12/03 19/12/03 19/12/03 19/12/03 19/12/03 20/12/03 119,642 64,150 60.4202 Related to Ernesto Silva, Director 60.4202 Director 707,248 60.4300 Related to Hernán Sommerville, Director 488 60.4202 Executive 64 64 64 64,123 58,109 58,109 2,142 2,537 259 60.4202 Daughter of Executive 60.4202 Son of Executive 60.4202 Daughter of Executive 60.4202 Related to Pablo Yrarrázaval, Chairman of the Board 60.4202 Related to Pablo Yrarrázaval, Chairman of the Board 60.4202 Chairman of the Board 60.4202 Executive 60.4202 Executive 60.4202 Wife of Executive Enersis / 2003 annual report Santiago Stock Exchange, Chilean Electronic Stock Exchange and Valparaiso Stock Exchange The transactions carried out on the stock exchanges in which Enersis Quarterly Stock Exchange Information for the last three years shares are traded, both in Chile, through the Santiago Stock Exchange, the Chilean Electronic Stock Exchange and the Valparaíso Stock Exchange, During the year, 8,038 million shares were traded on the Santiago and in the United States and Spain, through the New York Stock Exchange Stock Exchange for a total value of Ch$ 577,374 million. The closing price (NYSE) and the Latin American Stock Exchange of the Madrid Stock of the share as of December 30 was Ch$ 86.00. Exchange (Latibex) respectively, were as follows: Santiago Stock Exchange Units Amounts (Ch$) Average Price (Ch$) 1st Quarter of 2001 2nd Quarter of 2001 3rd Quarter of 2001 4th Quarter of 2001 1st Quarter of 2002 2nd Quarter of 2002 3rd Quarter of 2002 4th Quarter of 2002 1st Quarter of 2003 2nd Quarter of 2003 3rd Quarter of 2003 4th Quarter of 2003 217,618,425 292,388,256 226,195,786 393,051,599 512,037,133 474,079,058 692,521,240 684,639,252 435,639,838 2,037,701,115 2,615,141,119 2,949,415,326 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 26,289,331,211 126,168,454,878 183,158,237,990 241,758,079,458 205.94 197.59 185.74 183.26 140.70 103.17 78.39 64.48 60.35 61.92 70.04 81.97 13 During the year, 2,703 million shares were traded on the Electronic Stock Exchange of Chile for a total value of Ch$ 196,015 million. The closing price of the share as of December 30 was Ch$ 86.00. Electronic Stock Exchange of Chile Units Amount (Ch$) Average Price (Ch$) 1st Quarter of 2001 2nd Quarter of 2001 3rd Quarter of 2001 4th Quarter of 2001 1st Quarter of 2002 2nd Quarter of 2002 3rd Quarter of 2002 4th Quarter of 2002 1st Quarter of 2003 2nd Quarter of 2003 3rd Quarter of 2003 4th Quarter of 2003 83,608,430 158,055,600 109,886,421 169,896,292 269,920,400 190,914,137 175,890,647 209,062,958 129,900,766 701,457,496 798,685,064 1,073,262,130 17,152,644,402 31,321,294,251 20,354,381,577 31,038,862,776 37,714,503,611 19,585,092,537 13,502,731,692 13,168,996,825 7,816,872,780 44,548,746,027 56,421,436,525 87,227,786,087 205.77 197.13 186.42 182.94 139.72 102.59 76.77 62.99 60.18 63.51 70.64 81.27 ownership and control During the year, 70 million shares were traded on the Valparaíso Stock Exchange for a total value of Ch$ 5,016 million. The closing price of the share as of December 30 was Ch$ 85.91. Valparaíso Stock Exchange 1st Quarter of 2001 2nd Quarter of 2001 3rd Quarter of 2001 4th Quarter of 2001 1st Quarter of 2002 2nd Quarter of 2002 3rd Quarter of 2002 4th Quarter of 2002 1st Quarter of 2003 2nd Quarter of 2003 3rd Quarter of 2003 4th Quarter of 2003 Units 1,170,182 2,746,772 2,071,416 4,724,089 18,797,002 7,970,306 22,259,663 9,087,665 9,976,687 16,722,391 20,788,077 22,763,455 Amount (Ch$) Average Price (Ch$) 241,026,099 532,712,377 389,093,093 856,465,194 2,597,626,847 748,664,861 1,751,836,764 570,105,970 588,061,758 1,076,487,907 1,486,507,277 1,864,617,521 205.97 193.94 187.83 181.29 138.19 93.93 78.70 62.73 58.94 64.37 71.51 81.91 New York Stock Exchange (NYSE) Enersis’ shares began to be traded on the New York Sock Exchange During the year 2003, in the United States of America, 96 million 14 (NYSE) on October 20, 1993. The Company’s ADR is composed of 50 shares ADRs were traded for a total value of US$ 543 million. The price of the and their trading name is ENI. Citibank N.A. acts as the depository bank ADR closed at US$ 7.36 and the Banco de Chile as the custodian in Chile. New York Stock Exchange 1st Quarter of 2001 2nd Quarter of 2001 3rd Quarter of 2001 4th Quarter of 2001 1st Quarter of 2002 2nd Quarter of 2002 3rd Quarter of 2002 4th Quarter of 2002 1st Quarter of 2003 2nd Quarter of 2003 3rd Quarter of 2003 4th Quarter of 2003 ADR’s 6,105,000 6,181,500 4,750,900 6,703,000 10,004,100 4,378,200 3,304,200 4,063,400 2,396,400 22,642,100 28,205,200 43,052,600 Amount (US$) Average Price (US$) 109,434,411 100,399,572 64,675,499 88,799,879 103,381,378 35,266,409 17,965,659 17,549,621 9,594,354 103,382,511 144,246,700 285,393,515 17.93 16.24 13.61 13.25 10.33 8.06 5.44 4.32 4.00 4.57 5.11 6.63 Enersis / 2003 annual report Latin American Stock Exchange of the Madrid Stock Exchange (LATIBEX) The Enersis shares began to be traded on the Latin American Stock Santander Central Hispano Bolsa S.A. S.V.B acts as the liaison entity Exchange (Latibex) on October 17, 2001. The contracting unit for the and the Banco Santander as the custodian in Chile. Company is 50 shares and its trading name is XENI. Latibex 1st Quarter of 2001 2nd Quarter of 2001 3rd Quarter of 2001 4th Quarter of 2001 1st Quarter of 2002 2nd Quarter of 2002 3rd Quarter of 2002 4th Quarter of 2002 1st Quarter of 2003 2nd Quarter of 2003 3rd Quarter of 2003 4th Quarter of 2003 During the year 2003, 329 million shares for a total value of € 1,466 million were traded on the Latin American Stock Exchange of the Madrid Stock Exchange. The closing price of the share was € 5.86. Titles Amount (€) Average Price (€) - - - 91,330 547,410 735,956 1,168,892 1,332,800 1,674,520 1,590,018 289,159,472 36,196,071 - - - 1,376,275 6,513,823 6,439,734 6,518,111 6,028,207 6,217,505 6,210,510 1,246,411,078 207,310,744 - - - 15.07 11.90 8.75 5.58 4.52 3.71 3.91 4.31 5.73 15 Dividend policy for the year 2004 The Board of Directors, with the unanimous vote of its present derived from the normal operations of the Company, these being, the members, agreed to propose to the Ordinary Meeting of Shareholders income before amortizations and negative goodwill made during the 2004 of Enersis due to take place on March 26, 2004, the following Dividend period, without considering those produced by the following events: The dividends established in this policy will be applied on the results Policy with which the Board of Directors expects to comply during the 2004 period: 1. The effects of accounting produced as a result of the revaluation adjustments made to the contributions to subsidiaries. Distribute in May, August and November, 2004 and in February, 2005 an interim dividend of 85% of the net profits derived from the 2. The effects of accounting produced by the registration of the over- normal operations of the quarters ending in March, June, September and price when the subsidiaries place their own shares. December of the period, to be charged to the profits for 2004. For the purposes of calculating the above, the interim dividends corresponding 3. By the profits generated, directly or indirectly, from the investments to the 2004 period that might have been paid as of the date of the in affiliates established both in the country and abroad. distribution will be discounted from the 85% of the accumulated income before amortizations and negative goodwill. ownership and control 4. By the profits generated by overseas subsidiaries or by subsidiaries in The above is the intention of the Board of Directors but its compliance which the Company’s direct or indirect participation is less than 60% will be conditioned to the net profits that are effectively obtained and of their equity and by the profits derived from the sale of assets. also to the results projected periodically by the Company or the existence 5. By the registration of the positive or negative goodwill of those investments. of determined conditions. With respect to definitive dividends, the Board of Directors proposes that these should be at least for the amount of the interim dividends The Board of Directors will not distribute dividends against a charge already distributed or those established in the Law of Quoted Companies, to the net profits deriving from the events listed above and the Ordinary whichever of the two is the greater. General Meeting of Shareholders will have to decide on that issue when approving the definitive dividend. The following table shows the dividends per share paid during the last five years. Dividend Number 67 68 69 70 71 Type of Dividend Interim Definitive Interim Definitive Definitive Date of Closure 20.02.98 07.05.98 20.11.98 11.05.99 19.04.01 Date Paid 26.02.98 13.05.98 26.11.98 17.05.99 25.04.01 Chilean Pesos per Share (Ch$ of each year) Charged to Period 0.800000 4.500000 1.600000 4.000000 1.806391 1997 1997 1998 1998 2000 16 Distributable Profit Summary of the comments and proposals of the shareholders We should recall that in accordance with the Policy on Interim Dividends proposed to the Ordinary General Meeting of Shareholders of No comments were received by Enersis with respect to the progress the Company that took place on March 31, 2003, no interim dividend has of the business during the period between January 1 and December 31, been distributed. However, the Ordinary General Meeting of Shareholders 2003 from the majority shareholders or from the group of shareholders to be held in March 2004 will decide on the possibility of distributing a that represent 10% or more of the issued shares with voting rights, in definitive dividend. accordance with the regulations established in Article 74 of Law Nº 18,046 and Articles 82 and 83 of the Regulations of the Law on Quoted Companies. Profit for the Period Negative goodwill amortization (less) Net Loss ThCh$ 12,467,863 51,176,198 (38,708,335) Enersis / 2003 annual report board of directors Enersis is managed by a Board of Directors comprised of seven members who serve a three-year term and may be reelected. This Board of Directors was elected at the Ordinary Shareholders Meeting on March 31, 2003. 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 Alfonso Arias Tax Register Number: 48.087.945-7 Profession: Bachelors Degree in Law and Economics and Business Administration Universidad Complutense de Madrid DIRECTOR José Luis Palomo Tax Register Number: 51.316.595-F Profession: Bachelors Degree in Economic and Business Sciences, in Law and in Sociology University of Madrid 17 DIRECTOR Ernesto Silva Tax Register Number: 5.126.588-2 Profession: Business Administration Graduate Pontíficia Universidad Católica de Chile DIRECTOR Hernán Somerville Tax Register Number: 4.132.185-7 Profession: Attorney University of Chile DIRECTOR Eugenio Tironi Tax Register Number: 5.715.860-3 Profession: Sociologist School of Higher Studies in Social Sciences, Paris, France SECRETARY OF THE BOARD OF DIRECTORS: Domingo Valdés Tax Register Number: 6.973.465-0 Profession: Attorney University of Chile board of directors remunerations of the board of directors In accordance with the contents of Article 33 of Law Nº 18,046 on Below we give the details of the amounts paid to the Directors of Quotes Companies, the Ordinary General Meeting of Shareholders held Enersis as such, or as members of a Committee and to the Directors of on March 31, 2003 agreed on the remuneration corresponding to the the Company who act or have acted as Directors of subsidiaries. Board of Directors of Enersis for the 2003 period. As of December 31, 2003 (ThCh$) As of December 31, 2002 (ThCh$) DIRECTOR PabloYrarrázabal Rafael Miranda José Luis Alvarez José María Fesser Alfonso Arias Ernesto Silva Hernán Sommerville Eugenio Tironi TOTAL Board of Enersis 50,311 34,957 24,540 9,120 17,249 25,156 25,156 25,156 211,644 Committee of Enersis 8,584 - - - - 8,584 8,584 - 25,753 Total 58,895 34,957 24,540 9,120 17,249 33,740 33,740 25,156 237,397 Board of Enersis 22,814 37,524 11,407 24,406 - 25,015 25,015 24,413 170,594 Committee of Enersis 2,411 - - - - 3,591 3,591 - 9,593 Total 25,225 37,524 11,407 24,406 - 28,606 28,606 24,413 180,187 18 expenses of the board of directors During the year 2003, the Board of Directors did not utilize the expense allowance approved by the Ordinary Shareholders Meeting of the Company held in March, 2003. board practices Corporate Governance for a three year term and the term of each of the seven directors expires on the same day. Staggered terms are not permitted under Chilean law. Enersis is managed by its executive officers under the direction of its If a vacancy occurs on the board during the three year term, the board board of directors which, in accordance with the estatutos, or articles of of directors may appoint a temporary director to fill the vacancy until incorporation and bylaws, of Enersis, consists of seven directors who are a permanent replacement is elected at the next general shareholders elected at the annual regular shareholders meeting. Each director serves meeting. The current board of directors was elected in March 2003 and Enersis / 2003 annual report their terms expire in March 2006. The members of the board of directors do not have service contracts with Enersis or any of its subsidiaries that Compliance with NYSE Listing Standards on Corporate Governance provide benefits upon termination of employment. Chilean corporate law provides that a company’s board of directors is responsible for the management, administration and representation of a company in all matters concerning its corporate purpose, subject to the provisions of the company’s estatutos and the stockholders’ resolutions. In addition to the estatutos, the Board of Directors of Enersis S.A. has adopted regulations and policies that guide our corporate governance principles. The most important of these regulations and policies are the following: The Internal Regulations on Conduct in Securities Markets, approved by the Board on January 31, 2002, which determine the rules of conduct that must be followed by members of the Board of Directors, senior management and other managers and employees who, due to the nature of their job responsibilities, may have access to sensitive or confidential information, with a view to contributing to transparency and to the protection of investors. These regulations are based on the principles of impartiality, good faith, placing the company’s interests before one’s own, and care and diligence in using information and acting in the securities markets. The Charter Governing Executives (“Estatuto del Directivo”), approved by the Board on May 28, 2003, and the Employees Code of Conduct, which develop our principles and values, establish the rules governing dealings with customers and suppliers, and establish the principles that should be followed by employees in their work: ethical conduct, professionalism and confidentiality. They also impose limitations on the activities our senior executives and other employees may undertake outside the scope of their employment with us, such as non-compete limitations. The above regulations and rules reflect our core principles of transparency, respect for stockholders’ rights, and the duty of care and loyalty of the directors imposed by Chilean law Following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the corporate governance rules of the New York Stock Exchange. Because we are a “controlled company” under the NYSE rules (a company of which more than 50% of the voting power is held by an individual, a group or another company), we would not, were we a domestic U.S. company, be subject to the requirement that we have a majority of independent directors, or nomination and compensation committees. Independence and functions of the Audit Committee Under the NYSE corporate governance rules, all members of the audit committee must be independent. We will be subject to this requirement effective July 31, 2005. As required by Chilean Law, Enersis has a Comité de Directores composed of three directors. Although Chilean Law requires that a majority of the Comité de Directores (two out of three members) must be composed of directors who were not nominated by the controlling 19 shareholder and did not seek votes from the controlling shareholder (a “non-control director”), it permits the Comité de Directores to be composed of a majority or even a unanimity of controlled directors, if there are not sufficient non-control directors on the board to serve on the committee. Currently, our Comité de Directores is composed by one non-control director and by two directors appointed by the controlling shareholder. Our Comité de Directores does not currently meet the independence requirements to which the audit committee of Enersis, whether the Comité de Directores or a different committee, will become subject on July 31, 2005, or the additional independence requirements to which the audit committees of U.S. companies are subject. Under the NYSE corporate governance rules, the audit committee of a U.S. company must perform the functions enumerated in NYSE Listed Company Manual Rules 303A.06 and 303A.07. Non-U.S. companies are required to comply with Rule 303A.06 beginning July 31, 2005, but are not at any time required to comply with Rule 303A.07. We do not currently comply with these rules, but we expect that, when we become subject to Rule 303A.06, we will comply with both the independence and the function requirements of the rule. board of directors Corporate Governance Guidelines Committee of Directors The NYSE’s corporate governance rules require U.S. listed companies In accordance with the regulations of Article 50 bis of Law Nº 19,705, to adopt and disclose corporate governance guidelines. Chilean law does Enersis has a Committee of Directors, comprised of three members, with not contemplate this practice, other than with respect to the codes of the powers and duties considered in that article. conduct described above. Committees and Other Advisory Bodies The Comité de Directores On April 1, 2003, the Board of Directors of the Company designated as members of the Committee of Directors of Enersis, Messrs. Pablo Yrarrázaval, Hernán Sommerville and Ernesto Silva. In turn, in its meeting Nº 6 held on May 15, 2003, the Committee of Directors of Enersis agreed, The Comité de Directores is composed of three members who are with the unanimous vote of its members present, to designate Pablo simultaneously directors of the Company. It performs the following Yrarrázaval as its Chairman and Domingo Valdés as its Secretary. functions: Consequently, as of December 31, 2003, the Committee of Directors • examination of Annual Report, Financial Statements and the Reports of Enersis was comprised as follows: of the External Auditors and Inspectors of the Accounts; • formulation of the proposal to the Board of Directors for the selection of external auditors and private rating agencies; CHAIRMAN: Pablo Yrarrázaval Tax Register Number: 5.710.967-K Chairman of the Santiago de Chile Stock Exchange 20 • examination of information related to operations by the Company with related parties and/or related to operations in which the MEMBER: Ernesto Silva Company board members or relevant executive officers may have personal interest; Tax Register Number: 5.126.588-2 Business Administration Graduate Pontíficia Universidad Católica de Chile • examination of the remuneration framework and compensation plans for managers and executive officers; and • any other function mandated to the committee by the estatutos, the board of directors or the shareholders of the company. MEMBER: Hernán Somerville Tax Register Number: 4.132.185-7 Attorney University of Chile SECRETARY OF THE COMMITTEE: Domingo Valdés Tax Register Number: 6.973.465-0 Attorney University of Chile Enersis / 2003 annual report Activities of the Committee during the year 2003 Expenses of the Committee In its first session for the year held on January 15, 2003, the budget for functional expenses approved by the Ordinary Shareholders Committee of Directors agreed to propose to the Board of Directors, Meeting held in March, 2003 and has not had the need to employ a list of potential candidates to be nominated as experts on the non- professional consultancy to carry out its functions. During the year 2003, the Committee of Directors did not utilize the monetary contributions consisting of financial debts accepted as a form of payment towards the capital increase undertaken by the Company during the year 2003. In the meeting held on February 3, 2003, the Committee was informed on the progress made on the Financial Strengthening Plan of the Company. In the session held on February 10, 2003, the Committee proposed to the Board of Directors that Deloitte & Touche be designated External Auditors for the year 2003 and also agreed to propose to the Board of Directors, the designation of Feller Rate and Fitch Chile as the Local Private Risk Rating Agencies and Fitch, Moody´s and Standard & Poor´s as the International Private Risk Rating Agencies for Enersis for the year 2003. In its meeting held on March 7, 2003, the Committee was informed on the Experts´ Report on the capital increase prepared by the expert, Eduardo Walker. Furthermore, the Committee of Directors analyzed each quarter the Unconsolidated and the Consolidated Financial Statements of the Company; examined the information on the operations referred to in Articles 44 and 89 of Law Nº 18,046 on Quoted Companies and prepared reports on these subjects; it also examined the system of remunerations and plans on the compensation to managers and senior executives. To conclude, during the 2003 period, the Committee of Directors of Enersis has fully covered the matters indicated in Article 50 bis of the Law Nº 18,046 on Quoted Companies. capitulo 21 organization structure 22 Enersis / 2003 annual report management Management of Enersis CHIEF EXECUTIVE OFFICER Mario Valcarce Tax Register Number: 5.850.972-8 Business Administration Graduate Universidad Católica de Valparaíso REGIONAL CHIEF FINANCIAL OFFICER: Alfredo Ergas Tax Register Number: 9.574.296-3 Business Administration Graduate University of Chile REGIONAL CHIEF PLANNING AND CONTROL OFFICER Macarena Lama Tax Register Number: 21.495.901-1 Agronomist Escuela Técnica de Ingenieros Agrónomos de Madrid REGIONAL CHIEF ACCOUNTING OFFICER Fernando Isac Tax Register Number: 14.733.649-7 Economist University of Zaragoza 23 GENERAL COUNCEL Domingo Valdés Tax Register Number: 6.973.465-0 Attorney University of Chile COMMUNICATIONS OFFICER José Luis Domínguez Tax Register Number: 6.372.293-6 Civil Engineer Pontificia Universidad Católica de Chile AUDITING OFFICER Francisco Herrera Tax Register Number: 7.035.775-5 Civil Engineer Pontificia Universidad Católica de Chile HUMAN RESOURCES OFFICER Francisco Silva Tax Register Number: 7.006.337-9 Public Administration Graduate University of Chile Managers’ remunerations of the Company. This plan includes a definition of the range of bonuses according to the level of seniority of the executives. The bonuses paid The total remunerations received by the managers and senior to the executives consist of a determined number of gross monthly executives of Enersis during the year 2003 amounted to Ch$ 2,379 remunerations. million. Incentive plans Indemnities paid Enersis has a plan of yearly bonuses for its executives based on the This amount corresponds to that managers that left the Company during compliance of targets and the individual contribution towards the results the year. Indemnities paid during the year 2003 amounted to Ch$ 241 million. management Management of subsidiaries CHIEF EXECUTIVE OFFICER ENDESA CHILE CHIEF EXECUTIVE OFFICER OF COELCE Héctor López Tax Register Number: 48.062.402-5 B.Sc. in Law and Economic Sciences ICADE de Madrid Cristián Fierro Tax Register Number: 9.921.311-6 Civil Engineer University of Chile CHIEF EXECUTIVE OFFICER OF CHILECTRA CHIEF EXECUTIVE OFFICER OF CODENSA Rafael López Tax Register Number: 14.709.119-2 B.Sc. in Economic and Business Sciences University of Malaga CHIEF EXECUTIVE OFFICER OF EDESUR José M. Hidalgo NIF Nº (Spain): 10.120.778-G B.Sc. in Economic and Business Sciences Universidad de Santiago de Compostela 24 CHIEF EXECUTIVE OFFICER OF EDELNOR Ignacio Blanco Tax Register Number: 14.677.073-8 B.Sc. in Economic and Business Sciences University of Zaragoza CHIEF EXECUTIVE OFFICER OF CERJ José Inostroza José M. Martínez NIF Nº (Spain): 36.547.347-W Senior Industrial Engineer Escuela de Barcelona CHIEF EXECUTIVE OFFICER OF SYNAPSIS SOLUCIONES Y SERVICIOS IT LTDA Victor H. Muñoz Tax Register Number: 7.479.024-0 Civil Engineer Universidad Federico Santa María de Valparaíso CHIEF EXECUTIVE OFFICER OF COMPAÑÍA AMERICANA DE MULTISERVICIOS LTDA Pantaleón Calvo Tax Register Number: 6.611.573-9 Civil Engineer University of Chile Tax Register Number: 6.917.769-7 CHIEF EXECUTIVE OFFICER OF INMOBILARIA Civil Engineer University of Chile MANSO DE VELASCO LTDA Andrés Salas Tax Register Number: 6.002.870-2 Civil Engineer University of Chile Enersis / 2003 annual report Distribution of human resources The distribution of the human resources of Enersis in subsidiaries and affiliates as of December 31, 2003 was as follows: Company Enersis Endesa Chile (1) Chilectra (2) Edesur Edelnor Cerj Codensa Coelce Synapsis (3) Cam (4) Inm. Manso de Velasco Total Senior Executives Professionals and Technicians Workers and Others 18 54 26 32 14 29 19 22 14 8 4 98 1,323 502 1,622 340 1,028 754 533 692 797 9 90 138 217 604 200 460 85 820 51 542 11 Total 206 1,515 745 2,258 554 1,517 858 1,375 757 1,347 24 240 7,698 3,218 11,156 (1) Includes: Endesa Chile, Ingendesa, Pangue, Pehuenche, Celta, El Chocón, Edegel, Emgesa, Betania, Cachoerira Dourada and Túnel de Melón. (2) Includes: Empresa Eléctrica de Colina (3) Includes: Synapsis Chile, Synapsis Argentina, Synapsis Colombia, Synapsis Brazil and Synapsis Peru. (4) Includes: Cam Chile, Cam Argentina, Cam Brazil, Cam Colombia and Cam Peru. 25 During the period, we restructured the way Human Resources Furthermore, we carried out different training programs for workers functions in order to respond to the new organization structure of the and their families such as the Supervision Program, Development of Group. Technical and Personal Competence and Induction Courses, amongst others, totaling 9,880 hours of training, distributed in the following The principal activities of this management were directed towards manner: 5% training of Senior Personnel, 45% training professionals improving the perception of the working atmosphere within the and 50% training for clerical staff. organization, affected by the organization restructuring that has taken place over the past few years. We also developed programs to bring Senior Management closer During 2003, we successfully negotiated the Collective Employment General Management and Human Resources, Committee of Managers, Contract with the Company’s labor unions: Workers’ Union and the Union Communicational Activities and Sporting Events. of University Professionals, substantially improving the historic good labor relations between the workers and the Company. With respect to infrastructure, we enlarged, remodeled and to all the levels within the Company by means of breakfasts with the modernized some of the installations inside the Corporate Building. management activities Cultural activities the historic heritage of the country. Furthermore, Enersis published a book entitled “Illuminating Churches in America” with the images of all Enersis maintains its commitment to the community, working in the temples illuminated, both in Chile and in Colombia, Peru and the the fields of education and culture. In the latter, the Company’s effort Dominican Republic, thanks to this outstanding project. was acknowledged by the Corporación de Patrimonio Cultural de Chile which awarded it the “Heritage” prize in the Conservation category, Donation of libraries to the remote communities of the country thanks, amongst other things, to the “Illuminating Churches in the Three years ago, Enersis joined forces with the El Mercurio newspaper South of the World” project that provided modern lighting for temples to develop a campaign to provide libraries to the most remote in different parts of Chile, which became an important contribution to communities in the country. To date, we have delivered more than three those communities. thousand books to public libraries belonging to remote communities in the country. The beneficiaries in 2003 were Puerto Natales, Putre and This acknowledgement, according to the above institution, “confirms Easter Island. the importance of uniting the private world with works related to the national identity because, in addition to protecting the cultural and Exhibition of works by Matta intellectual heritage, it permits the Company to acquire a purpose if it Enersis, together with the Fundación Plaza del Mulato Gil, arranged projects itself within the society of which it forms a part”. It is for this the Roberto Matta exhibition in the Museo de Artes Visuales that paid reason that this prestigious award ratified the noble works that Enersis homage to someone that became one of the most important exponents has been doing, year after year, in the area of culture and that in 2003 of plastic arts in the last century. The exhibition comprised more than 26 can be summarized as follows: eighty works including paintings, graphics and ceramics. “Simply Matta” was open to the public between March and May of 2003. Illuminating Churches Since October 2001, the Endesa Foundation and the Enersis Group Energy Information Center (EIC) have developed the noble program of illuminating the most emblematic In addition to the sponsoring activities supported by Enersis through temples in the country in order to conserve and highlight the architectural its subsidiaries Chilectra and Endesa Chile, Enersis owns the Energy and spiritual value of the greatest number of monuments possible. From Information Center (EIC) where children and youths in the country may the moment of signing the agreement between the companies of the learn about the use and the various forms of energy in an educational Group and the Chilean Episcopal Conference, 18 churches have been and interesting manner. inaugurated throughout the country. In 2003, nine architectural works have been illuminated. These are: the Cathedral in Santiago, the Cathedral In 2003, the EIC received 8,618 visitors who learned about electricity in Valparaíso, the Basílica de María in Antofagasta, the Cathedral in Arica, through games, interactive maps and a video that explains the electricity the Cathedral in La Serena, the San Francisco Church in Santiago, the generation and distribution activities. Parroquia San Antonio del Mar in Barraza, the Nuestra Señora del Rosario Church in Quilpué and the Military Museum in Santiago. Furthermore, the Company complemented this educational activity with the work by a team trained to give talks on this subject to students We should point out that during this period, we decided to illuminate that reside in areas near to the electricity generating plants in the the Military Museum in Santiago due to the importance it has within country. Enersis / 2003 annual report Financial activities The year 2003 will be remembered as one of intense and productive financial activity. During this year we carried out an important Financial Strengthening Plan announced in October 2002 and conceived to fulfill three fundamental objectives: refinance the short and medium term debts, strengthen the equity base of the Company with a capital increase and improve the liquidity situation by means of the sale of some chosen assets. Subsequently, in the month of November, Enersis launched a bond issue for US$ 350 million on the Yankee market to mature in ten years at a face rate of 7.375%. Simultaneously, the Company obtained a new syndicated loan for US$ 500 million at a rate of LIBOR + 225 basis points led by the Bank of Tokio-Mitsubishi Ltd., Banco Bilbao Vizcaya Argentaria S.A., Caja Madrid, Deutsche Bank AG, San Paolo IMI S.p.A and Santander Central Hispano Investment Securities Inc. These two operations allowed Enersis to amortize the entire syndicated loan received in May, eliminating all the restrictions and With a greater success than expected, this plan achieved a reduction releasing the security established. in financial debts of 29%, from US$ 8,980 million as of December 31, 2002 to US$ 6,407 million as of December 31, 2003. Furthermore, the equity base increased by US$ 2,104 million. Refinancing of debt The refinancing stage included different forms of financing such as new syndicated loans, bond issues on the local and international markets, prepayment of bank debts and other minor operations. In the month of May, the first syndicated loan for the year was signed On the other hand, during July, Endesa Chile issued yankee bonds for US$ 600 million maturing in 10 and 12 years that permitted the payment of Euros 400 million in bonds on the European market (EMTN) and the prepayment of the syndicated loan received in May 2003. Subsequently, in October 2003, this subsidiary placed bonds on the local market for an amount of UF 8,000,000 which were utilized for the additional prepayment of US$ 197 million and improvement in the term of the credit of US$ 743 million mentioned above, leaving only US$ 284 for a total of US$ 2,330 million. This consisted of US$ 1,587 million for million outstanding as of December. 27 Enersis at a rate of LIBOR + 350 basis points and US$ 743 million for its subsidiary Endesa Chile at a rate of LIBOR + 300 basis points, at a term of five years with a grace period of 30 months on payments of principal. Finally, in February 2004, Endesa Chile obtained a new syndicated loan of US$ 250 million at a rate of LIBOR + 115 basis points with which this company prepaid the entire amount pending mentioned above. In this case, the operation was headed by the following banks: BBVA, Dresdner, Kleinwort Wasserstein, Salomon Smith Barney Inc. and Capital increase Santander Central Hispano Investments Inc. and included the participation of a further 28 banks. The increase in capital was done in three stages with the idea of offering the shareholders all the possible guarantees to permit them to take a well-informed decision. This transaction included a series of restrictions such as obligatory prepayments, limits on new investments and compliance of financial ratios as well as taking the guarantee over the shares and the inter-company loan between Enersis and Chilectra. For this reason, in the month of July, with the funds received from the capital increase undertaken by the Company, we proceeded to prepay US$ 582 million of this loan. The first stage took place between May 31, 2003 and June 30, 2003. This consisted of a first period of a preferential offer during which the shareholders of the Company had the right to subscribe 2.9409 shares for each share they possessed. During this stage Endesa Spain capitalized a debt of US$ 1,406 million owed by Enersis and the minority shareholders contributed US$ 663 million, in a clear sign of support of the Company. activities The second stage consisted of a period of exchange of local bonds In accordance with its commitment assumed at the Extraordinary that took place between November 1, 2003 and November 15, 2003, an Meeting of Shareholders held in March 2003, Endesa Spain decided not operation in which over US$ 86 million were swapped. to participate in this period in order to assure a greater pro rata for the rest of the shareholders that contributed an additional US$ 136 million. Finally, the third stage was carried out between November 20, 2003 and December 20, 2003 and consisted of a second preferential offer To summarize, the capital increase ended up being the largest in period when the right to the preferential subscription for the shareholders Latin America in recent times, and collected more than US$ 2,100 million, was 0.1196 shares for each share they possessed. surpassing even the most optimistic expectations. In this respect, we must remember that when this operation was launched, the stock markets were still fairly depressed and some sectors were very skeptical. 28 Sale of assets The divestment of assets satisfied the most optimistic expectations as the prices offered for the assets on sale were in the upper levels of those expected. Assets were sold for a total of US$ 757 million, including their debts. Divestments Río Maipo Canutillar Transmission Lines Infraestructura 2000 Total Deconsolidation Debt 33 - - 220 253 Total 203 174 110 270 757 Cash 170 174 110 50 504 Date of Sale March 2003 April 2003 May 2003 June 2003 Date of Deconsolidation April 2003 May 2003 - January 2003 Enersis / 2003 annual report Control of debts and capital markets Grade” rating beyond the contingencies experienced by some countries in the region during the past year. Another important aspect was the creation of a Control of Debts and Capital Markets area that arose in response to the greater requirements of the international financial and securities markets, responsible for ensuring the compliance of all the obligations that emanate from the agreements on credits signed by the companies of the Group. The corporate strategy applied to contain the inherent risks to an investment company in the electricity sector has been to manage the Company’s assets in a prudent and responsible manner. This policy has materialized in the past year in the strengthening of cash, reduction of debt, improvement of the ratios on quality of service, concentration of With respect to the Capital Markets, the tasks of this area include the primary activities and permanent monitoring of the economic and the active participation in the financial operations of the companies regulatory situation in each country where it has operations. of the Group, especially of the Chilean companies, on the local and international markets. Credit Risk Rating Enersis is an investment company whose assets are adequately diversified in five countries in the region, which provides a well-distributed corporate risk profile. In the same way, the financial cash flows of Enersis are equally diversified, with the added advantage that they are produced by the business of generation, distribution and other related activities, providing the financial situation of the Company with a greater stability. A concrete measure in the global contex t of the proac tive management of the Group’s risk has been the creation of the Committee on Risks, established to identify the broadest variety of risks that could affect the Company and to rapidly propose the necessary measures to contain them. This Committee has drawn up a map of risks to the Group and is operating under the most modern techniques of Management of Corporate Risks. Amongst other activities, the Committee on Risks must periodically inform the Board of Directors on the various measures generated such as mechanisms to protect cash flows, assets and the continuity of the 29 business operation. The above has been duly acknowledged by the local and international risk rating agencies. In fact, these institutions recognize, amongst others, that one of the strengths of the Group lies in the adequate portfolio of Both Enersis’ international and local risk rating, as of December 2003 may be seen in the following table, highlighting the fact that their investments which has permitted Enersis to maintain an “Investment outlook are all “stable”. Debt in local currency Debt in foreign currency Fitch BBB- BBB- Standard & Poor’s Moody’s BBB- BBB- - Ba2 Shares Bonds Fitch 1st Class Level 1 A Feller Rate 1st Class Level 1 A Humphreys 1st Class Level 2 BBB activities business Historic Expansion International development Enersis is the largest electricity Group in Latin America, achieved Enersis commenced its international expansion process during 1992 through a steady and stable growth in its electricity businesses, generation through its participation in various privatizations in the neighboring and distribution, as well as in businesses related to this activity. countries in the continent, in this way establishing a significant presence in the electricity sectors of Argentina, Peru, Colombia and Brazil. The development of the business of distributing electric power has been achieved jointly with its Chilean subsidiary Chilectra, a company In July of that year, Distrilec Inversora S.A., a company in which Enersis involved in the distribution of electric power in the Metropolitan Region holds a participation, was awarded Empresa Distribuidora Sur S.A., of Chile and overseas. Edesur, a company that distributes electric power in the city of Buenos Its investments in the generation of electric power in the country and further 39% of this company and became its controlling shareholder. Aires, Argentina. Subsequently, in December 1995, Enersis acquired a abroad have been developed through its subsidiary Empresa Nacional de Electricidad S.A. (Endesa Chile). Between July 1994 and December 1995 and through Inversiones Furthermore, the Company is involved in businesses that complement de Distribución Eléctrica de Lima Norte S.A. Edelnor in Peru. Also that its principal activities through a majority holding in the following year, it acquired Edechancay, a company that distributes electricity. Distrilima S.A., Enersis purchased 60% of the stock capital of Empresa companies: Synapsis Soluciones y Servicios IT Ltda. market, acquiring jointly with other partners an important part of Involved in supplying services and equipment related to information the shares in Companhia de Eletricidade do Rio de Janeiro, Cerj that technology and data processing. distributes electric power in the city of Rio de Janeiro, Brazil. During 1996, Enersis ventured for the first time into the Brazilian 30 Inmobiliaria Manso de Velasco Ltda. In 1997, Enersis participated successfully, through a consortium, in Involved in the real estate business, through the integral development the process of capitalization and subsequent control of Codensa S.A. ESP, of real estate projects and in the management, rental, purchase and sale a company that reserved the business of the distribution of electricity in of the real estate holdings of Enersis and its subsidiaries in Chile. the city of Bogotá and the department of Cundinamarca, Colombia. Compañía Americana de Multiservicios Ltda. At the beginning of 1998, Enersis ventured once again into the Its activities are related to business and other operations in Brazilian market. This time, through a consortium, which acquired networks for public service companies, preferably in the service of control of Companhia Energética de Ceará S.A. Coelce, a company that measuring systems for public service companies and as a purchasing distributes electricity in the State of Ceará in Northern Brazil. agent, importer and exporter, and also seller and supplier of materials for Enersis’ subsidiaries and third parties. Enersis / 2003 annual report During 1999, Endesa Spain became the controlling shareholder During the year 2003, Enersis carried out the capital increase that of Enersis. Through a Tender Offer (OAA – an Offer of the Acquisition permitted an increase in the Company’s equity base by more than US$ of Shares), in which Ch$ 320 were offered for each, the multinational 2,104 million. In addition, refinancing operations were carried out for company bought another 32% of Enersis which, added to the 32% acquired US$ 4,108 million through different instruments such as new syndicated in August 1997, increased Endesa Spain’s final stake in the ownership of loans, bond issues on the local and international markets, prepayment Enersis to 64%. The transaction, concluded on April 7, 1999, involved an of syndicated loans and other minor operations. Finally, assets worth US$ investment of US$ 1,450 million. 757 million were sold, including the Canutillar generating plant and the electricity distribution company, Río Maipo. On May 11, 1999, Enersis acquired an additional 35% of Endesa Chile, in which it already held 25% of the capital stock. Consequently, Enersis Risk factors attained approximately 60% of the ownership of the generating company, which it already controlled by appointing the majority of its directors. Enersis is a holding company that operates on the basis of the Thus, Enersis was consolidated amongst the largest private electricity payments from its subsidiaries and affiliates in order to be able to meet Groups in Latin America. its financial obligations. A significant part of the business of some of these subsidiaries depends on the conditions of water supplies, and thus, Important operations were carried out during 2000 that may be possible drought conditions could affect the profits of the Company. summarized as follows: the Company’s capital was increased by US$ 520 Furthermore, certain generating subsidiaries could find themselves in a million. Furthermore, US$ 1,400 million were incorporated as a result of situation of having to pay administrative fines due to drought. the sale of the subsidiaries, Transelec, Esval, Aguas Cordillera and the real estate divestments, within the strategic scope provided for in the Changes in regulations by the governments of the different countries Genesis Project. where the subsidiaries and affiliates operate might mean additional operating expenses that could have an impact on their profits. Important investments were made during 2001: US$ 364 million to increase the company’s stake in the capital stock of Chilectra; US$ 150 Enersis has debts subject to financial covenants and other contractual million in the purchase of 10% of the capital stock of Edesur, Argentina conditions. Also, possible variations in exchange rates could have a that was owned by the company´s workers; US$ 132 million to increase negative effect on the operating results of the Company. the participation in the Brazilian company Cerj and US$ 23 million to increase by 15% the participation of Enersis in Río Maipo. Some Latin American economies in which the Company has During the year 2002, progress continued in Chile on the construction by government authorities. For example, the Argentine authorities have of the Ralco hydroelectricity plant located in the VIII Region and in Brazil introduced a series of measures on monetary and exchange control that of the Endesa Fortaleza Thermoelectricity Plant in the State of Ceará. have negatively affected the operating results and could continue to have investments have been known for their occasional drastic interventions 31 Furthermore, the second phase of the electricity interconnection between an impact on them, affecting them negatively. Argentina and Brazil commenced operations, achieving a transmission capacity of 2,000 MW between the two countries. In addition, during this Development and growth year, Enersis strengthened the financial position of Cerj by converting into equity US$ 100 million in convertible bonds and with a capital increase Enersis’ principal objective is to maximize the economic value of its of US$ 100 million and invested US$ 1.6 million to increase by 1.73% its equity through stable growth founded on electric businesses rigorously share of the capital of Distrilima, the company through which it controls evaluated and managed. The attainment of this objective is sustained by Edelnor. an investment strategy focused on increasing the value of the subsidiaries and related companies and the acquisition of new companies. business 32 A key factor of this strategy involves making investments that The capital increase was materialized through the issue and significantly call for the experience, management skills and operating subscription of 770,833,333,333 ordinary shares at a price of R$ 0.48 capabilities of Enersis and its subsidiaries. This requirement makes it for each lot of one thousand shares, raising the capital of the Company necessary to invest in companies in which Enersis has a final decision on by US$ 259 million. their management and operations as well as the power to approve or reject their investment projects. With this operation, the percentage of Enersis’ direct shareholding through its agency increased momentarily from 20.38% to 40.03% having Another development factor consists in having an exceptional team to register a greater value in investments of Ch$ 71,610 million. On May 5, of professionals that actively interact with the subsidiaries, providing 2003, Enersis transferred to Chilectra 392,660,478,826 shares, equivalent them with assistance in evaluating their investment projects and that to 13.56% of the capital of Cerj, for an amount of US$ 57 million. This are permanently alert to new business opportunities in their respective implied a reduction of the greater value by Ch$ 47,402 million, leaving a business areas in the Latin American market. balance of Ch$ 24,208 million. With this sale, the relative participations of Chilectra and Enersis in Cerj that existed prior to the capital increase The above-mentioned factors enable Enersis to make investments in that company are maintained. that contribute to the growth of profits with an adequate weighting of risks deriving from its business activities. Continuing with the strategic objective of increasing the presence in Investments and Divestments CHILE the generating sector in Brazil, Enersis jointly with Endesa Spain proceeded with the construction of the Fortaleza Thermoelectric Power Plant in the State of Ceará. This power station has an installed capacity of 310 MW and an investment of approximately US$ 250 million. In this manner, Chile’s most important investment during 2003 was the continuation Coelce’s electric supply is assured, in a market with one of the highest of the construction of the Ralco hydroelectric power plant, which is being growth rates in Brazil. developed by our subsidiary Endesa Chile . During the present year US$ 221 million were invested in the construction of the power plant and a physical In effect, by December 2003 the first operating tests of the power progress rate of 95.7% was achieved at the end of the year. plant had been carried out with excellent results, permitting the initiation of full operations during the first quarter of the year 2004. In line with Enersis’ Financial Strengthening Plan, during 2003 a series of divestments took place and are detailed as follows: In the month of Prospects for the Year 2004 March, Compañía Eléctrica del Río Maipo was sold to CGE Distribución S.A., a subsidiary of Compañía General de Electricidad S.A. This operation was CHILE for an amount of US$ 203 million, of which US$ 33 million corresponded In the distribution business, the introduction of the so-called to a deconsolidation of debt. In the month of April, the Canutillar power “Short Law” (Ley Corta) on the electricity sector in Chile has curtailed plant belonging to Endesa Chile was sold. The amount of the sale came the uncertainty on investments in transmission and in other matters to US$ 174 million. In June Infraestructura 2000 was sold for US$ 270 concerning the sector. A first sign of confidence in the conditions for million, of which US$ 220 million corresponded to a deconsolidation of investing appeared in 2003 when, for the first time in several years, debt. Finally, in May some assets in transmission lines in the north of the different generating companies submitted bids in response to a tender country were sold for a total amount of US$ 110 million. for power from Chilectra. BRAZIL We believe that the Governmental and legislative authorities created On December 10, 2002 the Extraordinary General Meeting of the right conditions to enable the companies in the sector to continue Shareholders of Cerj approved a capital increase for an approximate providing their clients with a service of the best quality. This requires an value of US$ 100 million. adequate return on investments that must be reflected in the price of Enersis / 2003 annual report this service. In virtue of this, the periodic process of reviewing the tariffs BRAZIL is currently underway. The stage at which the New Replacement Value is The focus of the efforts in Brazil will be placed on a determined and set has been completed and the only matter pending is the setting of the significant progress in energy losses in the Cerj concession area following Added Distribution Value, which will permit the definition of the tariff that the important investments made during 2003 in the distribution of will rule the distribution of electric power for the next 4 years. electricity in Rio de Janeiro. The commitment of the Company with the city and its clients during During the first quarter, we expect the third stage of Cerj’s financial 2004 is to surpass their expectations in terms of quality of service, satisfy strengthening plan to be completed. This considers the restructure of their needs and become a substantial factor in the improvement of the the short-term bank borrowings by means of a bond issue and the new quality of life in the city of Santiago. Furthermore, we wish to contribute capitalization of inter-company loans for an amount of US$ 250 million. this experience to all our distribution companies throughout Latin America These measures will enable the company to strengthen its equity base, and, at the same time, emulate their best practices. giving it a more solid financial position. All this will permit the company The tendency observed in 2004 for the countries in which Enersis has of electricity and fundamentally on the application of the plans to reduce operations is towards an increase in demand for electricity, of over 4%, the losses mentioned above. to concentrate its efforts principally on the main business, the distribution in line with the rising economic activity, a similar range to the historic growth rates of the 90s. Both Cerj and Coelce, the distribution company in the State of Ceará, will have to face during the period just starting a new regulatory model With regard to the generating business, on December 10, 2003 Endesa of the electricity business in Brazil that implies a degree of uncertainty Chile submitted a project on the expansion of the San Isidro Power Plant to for our operations. This new scheme is characterized by an increase in the the Environmental Impact Evaluation Authorities with the presentation of role of the State in the regulatory functions, even when the initial rumors a Study on the Environmental Impact before the Regional Environmental indicate that the distribution sector will continue being, essentially, a 33 Commission for the V Region. pass-through business. The purpose of the project is to ensure a reduction of the dependence Should the pace of stabilization of the Brazilian economy continue, on the hydroelectricity plants in the southern zone of the country and to just as we have been able to appreciate throughout the second semester satisfy future demand for power in the Central Interconnected System of 2003, this should result in a sustained growth in demand for energy. (CIS). For this, Endesa Chile needs to increase the generating capacity of In that case, it would be logical to expect an interesting growth in the the San Isidro combined cycle thermoelectric power plant owned by its sales of both companies. subsidiary, Compañía Eléctrica San Isidro S.A. ARGENTINA The project consists of the construction and start-up of a second The operations in Argentina will be marked by the process of combined cycle unit with 370 MW of power, duplicating its current renegotiation of the concession contract of Edesur, as defined by law generating capacity. We expect an annual generation of approximately at the end of last year. This process commenced with positive signs. The 2,500 GWh and its connection to the CIS will be through a 220 kV power Argentine Government has taken steps to readjust the tariffs for the large line between the station and the Quillota sub-station belonging to HQI industrial clients and we trust that during the course of the year there will Transelec Chile S.A. The characteristics of the enlargement will be very be a possibility of authorizing increases for the distribution companies similar to the current San Isidro plant. The investment required to develop for account of the negotiations. These signs are particularly opportune this project is estimated at US$ 190 million. considering that Enersis has taken all the necessary measures to permit business the full operation of Edesur, though some of them, such as the strong Just as in other countries in which the Enersis Group has operations, reduction of Capex, may not be possible to maintain in medium and long if the macroeconomic conditions in Peru remain stable, this subsidiary term due to, amongst other reasons, the important growth in demand in could experience an interesting growth in its sales of energy. our concession area. Thus, our subsidiary, Edesur, may benefit from the growth in demand that the recovery of the Argentine economic activity COLOMBIA would suggest, an aspect confirmed by some of the main industrial activity In Colombia, in the financial area, Codensa expects to conclude a statistics throughout 2003. bond issue on the local market during 2004. In any case, the adequate resolution of the matter of tariffs will The company will multiply its efforts to venture into new businesses continue being an essential aspect in the overall performance of Edesur, such as the recent opening of a new line of credit for the clients interested as also of the other electricity distribution companies in the country. in acquiring electrical appliances. In this way, and by facilitating the access PERU to equipment that consumes electricity, it is hoped to stimulate the consumption of electricity preferably in the business and residential areas. In Peru, during the second half of the year, Edelnor will commence This would have an important effect not only on the added consumption its process of fixing tariffs in an atmosphere of strong questioning of but also on the diversification of the source of demand and the result of the performance of the privatized companies. In any case, Edelnor can which should be a more stable increase in revenues. demonstrate in its favor a permanent policy of expansion of its coverage and improvement in its technical quality. In fact, the statistics on the It is also hoped to make progress on the subject of reducing non- interruption of supply and their respective duration have improved technical losses in order to reach a position more in line with the Chilean ostensibly since the company was privatized. and Peruvian companies. In fact, Codensa has the technical capacity and sufficient trained human resources to achieve a better level of efficiency It is interesting to point out that since the year 1996 this subsidiary in this area. has significantly reduced its energy losses, which reflects growing signs of efficiency. 34 Enersis / 2003 annual report investment and financing policy The Ordinary Meeting of Shareholders held on March 31, 2003 participation in their capital with appointees originating preferably approved the Investment and Financing Policy for the year 2003 from the Board of Directors or the senior management of both the described below: 1. Investments (a) Investment areas 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. • Super vise the management of the subsidiar y and related As approved in the by-laws, Enersis will make investments in the companies. following areas: • Maintain a permanent control of the borrowing limits such that • Equity contributions for investment or creation of subsidiary or related the investments and contributions made or planned do not imply a companies whose activity is similar, related or connected to energy variation beyond the norms on parameters that define the maximum in any of its forms or nature, or to the supply of public services or limits for investments. that have energy as their main raw material. • Investments consisting in the acquisition, exploitation, construction, 2. Financing rental, management, marketing and sale of any kind of real estate, be it directly or through subsidiary companies. (a) Maximum level of indebtedness • Other investments in any kind of financial assets, titles and The maximum level of indebtedness for Enersis will be based on a instruments. ratio of total debt to equity plus minority interests equal to 1.75 times 35 the consolidated balance sheet. (b) Maximum investment limits The maximum investment limits for each investment area will be (b) Attributes of management to agree with creditors on as follows: restrictions to dividend payments i) Investments in its subsidiaries in the electric sector, as needed Restrictions on dividend payments may only be agreed to with to enable such subsidiaries to fulfill their respective corporate creditors when these restrictions have been previously approved at a purposes. General Meeting of Shareholders (either Ordinary or Extraordinary). ii) Investments in other subsidiary companies, such that the total of the proportions of the fixed assets corresponding to the (c) Attributes of management to agree with creditors on the participation in each one of these other subsidiary companies granting of collateral does not exceed the proportion of fixed assets corresponding to The management of the Company may agree with the creditors the participation in the subsidiaries of the electric sector and of to grant real or personal security, if complying with the law and the Enersis S.A. Company’s by-laws. (c) Controlling participation in investment areas (d) Essential assets for the operation of the Company In order to control areas of investment and in accordance with the The shares that represent the equity investments made by Enersis definition of the corporate purpose of Enersis, actions as far as possible in its subsidiaries Chilectra and Compañía Eléctrica del Río Maipo are will be taken as follows: essential assets for the operation of the Company. • Propose to the Shareholders’ Meetings of the subsidiary and related companies, the appointment of Directors that correspond to Enersis’ investment and financing policy evolution of the financial statements Millions of Ch$ (nominal) Total Assets Total Liabilities Minority Interests Shareholders’ Equity Liquidity Ratio Debt Ratio (1) Operating Income Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Profit (Loss) for the Period 1994 743,066 226,364 132,123 384,579 1.28 0.44 343,432 (251,033) (38,142) 54,257 24,156 68,811 1995 1,524,737 704,661 311,971 508,105 0.75 0.86 736,026 (561,474) (86,030) 88,522 57,516 97,542 1996 4,136,432 2,028,207 1,465,902 642,323 1.17 0.96 1,160,667 (718,014) (117,240) 325,413 (14,845) 105,969 1997 6,180,415 3,202,042 2,272,352 706,021 1998 7,442,034 4,017,266 2,640,805 783,963 1.20 1.08 0.94 1.17 1,334,977 (857,444) (115,129) 362,404 (66,693) 103,516 1,548,497 (942,288) (129,857) 476,352 (184,815) 90,093 (1) Total Liabilities / (Shareholders’ Equity plus Minority Interests) 36 Millions of Ch$ (nominal) Total Assets Total Liabilities Minority Interests Shareholders’ Equity Liquidity Ratio Debt Ratio (1) Operating Income Operating Costs 1999 11,123,834 6,822,701 3,602,470 698,662 2000 2001 11,058,463 12,388,155 6,444,707 3,513,155 1,100,600 7,254,045 3,954,923 1,179,186 2002 12,621,165 7,564,982 4,050,603 1,005,580 2003 10,732,747 4,835,073 3,349,282 2,548,392 0.81 1.59 0.62 1.40 0.71 1.41 0.56 1.50 1.02 0.82 2,270,897 2,589,957 2,970,273 2,485,873 2,352,333 (1,596,916) (1,754,707) (1,966,322) (1,730,050) (1,651,732) Selling and Administrative Expenses (244,742) (314,736) Operating Income Non-Operating Income Profit (Loss) for the Period (271,383) 732,567 429,240 520,514 (400,246) (159,532) (483,496) (78,159) 90,083 40,926 (223,179) 532,644 (796,530) (223,748) (169,503) 531,098 (449,911) 12,468 (1) Total Liabilities / (Shareholders’ Equity plus Minority Interests) Enersis / 2003 annual report corporate structure DISTRIBUTION GENERATION TRANSMISSION R O T C E S Y T I C I R T C E L E S E S S E N I S U B R E H T O 37 MASSIVE SERVICES ENGINEERING INFRASTRUCTURE INFORMATION AND TELECOMMUNICATIONS GAS PIPELINE REAL STATE corporate structure evolution of the operating data GENERATION ENDESA CHILE Sale of Energy (GWh) Production of Energy (GWh) Installed Capacity (MW) Employees Sales/ Employee (MWh) / employee) ENDESA FORTALEZA (CGTF) (*) Sale of Energy (GWh) Production of Energy (GWh) Installed Capacity (MW) Employees Sales/ Employee (MWh) / employee) DISTRIBUTION CHILECTRA Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees 38 EDESUR Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees EDELNOR Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees CERJ Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees CODENSA Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees COELCE Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees 1994 22,075 20,027 5,093 2,679 8,240 - - - - - 1994 6,358 9.3% 1,064 1,811 8,897 16.2% 2,043 4,324 2,650 18.8% 580 866 - - - - - - - - - - - - 1995 26,613 23,663 5,967 2,950 9,021 - - - - - 1995 6,676 9.0% 1,099 1,801 9,731 12.0% 2,050 3,950 2,756 16.1% 673 758 - - - - - - - - - - - - 1996 32,765 27,680 6,837 2,300 14,246 - - - - - 1996 7,256 8.6% 1,133 1,643 10,398 10.1% 2,042 3,515 2,993 13.8% 749 943 5,733 29.3% 1,217 4,376 - - - - - - - - 1997 39,953 28,722 10,247 2,753 14,513 - - - - - 1997 7,647 7.6% 1,169 1,664 11,160 8.3% 2,078 3,180 3,256 11.7% 805 777 6,424 25.3% 1,341 2,288 7,929 23.8% 1,536 2,067 - - - - (*) Station inaugurated in January 2004. Number of employees as of December 31, 2003. Enersis / 2003 annual report 1998 50,291 37,000 11,886 3,158 15,925 - - - - - 1998 8,175 6.0% 1,212 1,674 11,680 8.1% 2,094 2,999 3,389 9.7% 816 765 7,208 19.1% 1,452 2,260 8,217 19.5% 1,628 1,904 5,377 13.3% 1,508 1,834 1999 50,812 39,892 12,251 2,526 20,116 - - - - - 1999 8,425 5.4% 1,239 1,383 12,325 7.8% 2,105 2,630 3,423 8.8% 843 722 7,694 15.3% 1,559 1,782 8,502 14.4% 1,746 1,213 5,709 11.2% 1,652 1,958 2000 56,482 42,122 12,347 1,764 32,019 - - - - - 2000 8,854 5.2% 1,262 868 12,597 10.3% 2,108 2,379 3,583 9.9% 852 618 7,656 19.7% 1,581 1,402 8,776 10.5% 1,802 969 5,894 13.3% 1,796 1,592 2001 54,234 42,227 12,253 1,752 30,955 - - - - - 2001 9,585 5.4% 1,289 772 12,909 9.9% 2,097 2,267 3,685 8.9% 867 557 6,739 22.7% 1,691 1,354 8,673 11.8% 1,850 813 5,352 13.0% 1,917 1,464 2002 48,629 41,022 11,953 1,623 29,962 - - - - - 2002 9,952 5.6% 1,319 720 12,138 11.6% 2,090 2,251 3,872 8.5% 871 565 7,146 22.6% 1,778 1,451 9,015 10.3% 1,911 802 5,558 12.9% 2,009 1,401 2003 51,053 42,929 11,599 1,515 33,698 - - - 310 45 2003 10,518 5.6% 1,341 745 12,638 11.8% 2,117 2,258 3,972 8.4% 892 554 7,398 23.6% 1,905 1,517 9,254 10.2% 1,972 858 5,897 13.5% 2,255 1,375 GENERATION ENDESA CHILE Sale of Energy (GWh) Production of Energy (GWh) Installed Capacity (MW) Employees Sales/ Employee (MWh) / employee) ENDESA FORTALEZA (CGTF) (*) Sale of Energy (GWh) Production of Energy (GWh) Installed Capacity (MW) Employees Sales/ Employee (MWh) / employee) DISTRIBUTION CHILECTRA Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees EDESUR Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees EDELNOR Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees CERJ Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees CODENSA Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees COELCE Sale of Energy (GWh) Loss of Energy Clients (Thousands) Employees 1994 22,075 20,027 5,093 2,679 8,240 1994 6,358 9.3% 1,064 1,811 8,897 16.2% 2,043 4,324 2,650 18.8% 580 866 - - - - - - - - - - - - - - - - - 1995 26,613 23,663 5,967 2,950 9,021 - - - - - 1995 6,676 9.0% 1,099 1,801 9,731 12.0% 2,050 3,950 2,756 16.1% 673 758 - - - - - - - - - - - - 1996 32,765 27,680 6,837 2,300 14,246 1996 7,256 8.6% 1,133 1,643 10,398 10.1% 2,042 3,515 2,993 13.8% 749 943 5,733 29.3% 1,217 4,376 - - - - - - - - - - - - - 1997 39,953 28,722 10,247 2,753 14,513 - - - - - - - - - 1997 7,647 7.6% 1,169 1,664 11,160 8.3% 2,078 3,180 3,256 11.7% 805 777 6,424 25.3% 1,341 2,288 7,929 23.8% 1,536 2,067 1998 50,291 37,000 11,886 3,158 15,925 - - - - - 1998 8,175 6.0% 1,212 1,674 11,680 8.1% 2,094 2,999 3,389 9.7% 816 765 7,208 19.1% 1,452 2,260 8,217 19.5% 1,628 1,904 5,377 13.3% 1,508 1,834 1999 50,812 39,892 12,251 2,526 20,116 - - - - - 1999 8,425 5.4% 1,239 1,383 12,325 7.8% 2,105 2,630 3,423 8.8% 843 722 7,694 15.3% 1,559 1,782 8,502 14.4% 1,746 1,213 5,709 11.2% 1,652 1,958 2000 56,482 42,122 12,347 1,764 32,019 - - - - - 2000 8,854 5.2% 1,262 868 12,597 10.3% 2,108 2,379 3,583 9.9% 852 618 7,656 19.7% 1,581 1,402 8,776 10.5% 1,802 969 5,894 13.3% 1,796 1,592 2001 54,234 42,227 12,253 1,752 30,955 - - - - - 2001 9,585 5.4% 1,289 772 12,909 9.9% 2,097 2,267 3,685 8.9% 867 557 6,739 22.7% 1,691 1,354 8,673 11.8% 1,850 813 5,352 13.0% 1,917 1,464 2002 48,629 41,022 11,953 1,623 29,962 - - - - - 2002 9,952 5.6% 1,319 720 12,138 11.6% 2,090 2,251 3,872 8.5% 871 565 7,146 22.6% 1,778 1,451 9,015 10.3% 1,911 802 5,558 12.9% 2,009 1,401 39 2003 51,053 42,929 11,599 1,515 33,698 - - 310 45 - 2003 10,518 5.6% 1,341 745 12,638 11.8% 2,117 2,258 3,972 8.4% 892 554 7,398 23.6% 1,905 1,517 9,254 10.2% 1,972 858 5,897 13.5% 2,255 1,375 evolution of the operating data Pangue Power Plant, Chile generation Colombia 2,589 MW Peru 967 MW Brazil 968 MW Argentina 3,622 MW Chile 3,763 MW 41 Ralco Power Plant, Chile Endesa Chile information of the company BOARD OF DIRECTORS SENIOR EXECUTIVES Chairman of the Board Luis Rivera Chief Executive Officer Héctor López Vice-Chairman Antonio Pareja Directors Jaime Bauzá Ignacio Blanco Enrique García Carlos Torres Andrés Regué Antonio Tuset Leonidas Vial Chief Communications Officer Renato Fernández Legal Counsel Carlos Martín Chief Financial Officer Alejandro Gonzalez Chief Human Resources Officer Juan Carlos Mundaca Chief Planning and Control Officer Julio Valbuena Chief Trading and Sales Officer José Venegas Chief Energy Planning Officer Rafael Errázuriz Chief Production and Transport Officer Rafael Mateo 43 Chief Chile Generation Officer Claudio Iglesias Corporate Name Empresa Nacional de Electricidad S.A. Stock Company Tax Register Number 91.081.000-6 Address Santa Rosa Nº 76 Santiago, Chile Telephone (56-2) 630 9000 Fax (56-2) 635 4720 P.O. Box 1392, Santiago Web Site www.endesa.cl E-Mail comunicacion@endesa.cl Inscript. Securities Register Nº 114 External Auditors Ernst & Young Servicios Profesionales de Auditoría Ltda. Number of Shares 8,201,754,580 Number of Shareholders 27,334 Subscribed and Paid-in Capital (ThCh$) 1,050,193,846 Participation of Enersis (direct and indirect) 59.98% Corporate purpose Generation and supply of electric power, sale of consulting and engineering services within the country and abroad and construction and management of infrastructure works. generation Enersis is the principal shareholder of Endesa the interconnecting lines with Brazil; and CEMSA, Chile with 59.98% of its property. Through a sales company that has established contracts Endesa Chile, the Group has channeled for exports to that country through the related its investments into the area of electricity Brazilian company, CIEN. The latter is supplied generation. The principal activities it carries mainly by Central Costanera that has committed out are related to the generation and sale of 962 MW with the Brazilian market In Brazil, electric power. In addition, its sells consultancy through Centrais Elétricas Cachoeira Dourada S.A. 44 and engineering services in all its specialities it operates a total of 658 MW of power that In Argentina, through Central Costanera S.A. represents 1% of the national installed capacity. and Hidroeléctrica El Chocón S.A., it operates During the year 2003 it generated 3,024 GWh and a total of 3,622 MW of power. In this way, sold 3,770 GWh. Furthermore, it participates in Endesa Chile is one of the principal operators the sales market through the interconnection line in the generating activity with 16% of the operated by CIEN that has 2,000 MW committed total of the Argentine Interconnected System. Endesa Chile is the principal generating company During the year it generated 8,128 GWh and of electric power in Chile and one of the largest sold 9,259 GWh. Endesa Chile also controls companies in the country. In Chile, it operates a CTM and TESA, transport companies that own total of 3,763 MW of power, which represents 35% Enersis / 2003 annual report of the installed capacity in the country. Some 73% of the on the spot market. The installed capacity of Celta S.A. installed capacity of Endesa Chile and its subsidiaries in this system amounts to 182 MW, 5% of NIS and if we is hydroelectric and the rest is thermal. Endesa Chile include GasAtacama Generación, of which Endesa Chile participates in the Central Interconnected System (CIS), owns 50%, the installed capacity in NIS amounts to 27%. the principal interconnected system in the country and Thus, during the year, Endesa Chile generated 16,524 that extends through an area where approximately 93% GWh and sold 18,861 GWh In Colombia, through of the population of the country resides. Endesa Chile Central Hidroeléctrica de Betania S.A. E.S.P. and Emgesa, and its subsidiaries have an installed capacity of 3,581 it operates a total of 2,589 MW of power that represents 45 MW in this system, accounting for approximately 50% 20% of the Colombian installed capacity. During 2003, of CIS. The company also participates in the Northern they generated 10,794 GWh with an annual sale of Interconnected System (NIS) through its subsidiary, 14,900 GWh In Peru, through Edegel, it operates a Celta S.A. and indirectly through Gasoducto Atacama total of 967 MW of power that represents 22% of the Chile Limitada and GasAtacama Generación Limitada, Peruvian system with an annual generation of 4,458 GWh supplying different mining companies and with sales and annual sales of 4,443 GWh With respect to the generation most important projects developed during 2003, we would highlight the Ralco Power Plant that is located in the Alto Bío Bío area, approximately 120 kilometers southeast of the city of Los Angeles and some 30 kilometers above the Pangue Plant. Its nominal power will be 570 MW. This will permit an annual contribution to the Central Interconnected System of 46 an average generation of 3,100 GWh and its start- Interconnected System Another important project up is expected during 2004. As of December 31, is the Enlargement of the San Isidro II Plant, whose 2003, the physical progress in the construction works objective is to ensure a reduction in the dependence reached 96% Related to this project, we highlight on the hydroelectricity plants in the southern zone the Link between the Ralco Station and the CIS. This of the country and to satisfy future demand for project was concluded on June 27, 2003 and included energy from the Central Interconnected System (CIS) the construction of a transmission line of 2x220 kV This consists of constructing and putting into and 140 kilometers in length that connects the Ralco operation an enlargement of the combined cycle Hydroelectricity Plant to the Charrúa sub-station plant (Second Unit) i.e. natural gas-steam, with 370 where the energy will be delivered to the Central MW of power, increasing the generating capacity of Enersis / 2003 annual report San Isidro by 100%. The annual generation is expected areas of energy, infrastructure, mining, public works to be approximately 2,500 GWh and the investment and telecommunications, through services provided to amounts to US$ 190 million With respect to CIEN, the the Group and other unrelated clients Furthermore, contracts associated with the Argentina-Brazil power Endesa Chile manages the concessionaire, Túnel El interconnection lines are: 300 MW with Tractebel, 700 Melón S.A. that operates on Route number 5 North. This MW with Furnas, 400 MW with Copel (previously 800 company began its definite operations in September 1995 MW that were renegotiated to the current 400 MW) and when it placed its use and installations at the disposal of 200 MW with Cerj. With power purchased from Petrobras its customers. The horizon of the concession stretches till 47 and Dona Francisca, in 2003 the Company supplied 106 May 2016 During 2003, we very successfully concluded MW to Coelce and 54 MW starting in 2004. In addition, the sale of Infraestructura 2000 S.A. to the Spanish commencing in January 2004, the sale to Cerj will company OHL Concesiones S.L. for a total amount of increase by 84 MW In addition to generation, Endesa approximately US$ 50 million. This transaction permitted Chile possesses other businesses in which we highlight the deconsolidation of approximately US$ 220 million Ingendesa that participated in important investment in debts that Infraestructura Dos Mil S.A. had with third projects in Chile and in Latin America, particularly in the parties Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative and Expenses Operating Income Non-Operating Income Net Income 2003 920,281 (550,447) (31,324) 338,511 (179,005) 78,131 2002 947,480 (561,142) (36,652) 349,687 (316,559) (9,412) Var 02-03 (27,199) 10,695 5,328 (11,176) 137,554 87,543 % Var (2.9%) 1.9% 14.5% (3.2%) 43.5% 930.1% generation Endesa Fortaleza Power Plant, Brazil Endesa Fortaleza information of the company BOARD OF DIRECTORS Chairman Francisco Javier Bugallo Directors Juan Pablo Herrera Marcelo Llévenes Chief Executive Officer Hernán Salazar Corporate Name CGTF- Central Geradora Termelétrica Fortaleza S.A. Type of Company Foreign Stock Company Address Rua Adolfo Pinheiro 176, Dionisio Torres Postal Area Code 60.120-040 Telephone (55-85) 216 4551/52 Fax (55-85) 216 4564 External Auditors Deloitte & Touche Tohmatsu Subscribed and Paid-in Capital (R$) 151,935,779 Participation of Enersis (direct and indirect) 48.82% Corporate purpose Development of projects for thermoelectricity generation in Brazil. 49 generation Endesa Fortaleza, a combined cycle station of the PPT was to stimulate the diversification of located 50 kilometers from the capital of the sources of generation and, with it, reduce the the Brazilian State of Ceará, commenced strong dependence Brazil had on hydroelectric its business operations in December 2003. energy The fact that the Endesa project was This plant is 51% owned by Endesa and 49% included in the PPT has meant some advantages by Enersis The new plant, which has an such as the guaranteed supply of natural gas to the 50 net installed capacity of 310 MW and which station during 20 years by the Government of Brazil, has involved an investment of US$ 250 investment incentives and facilities to obtain lines million, is included in the Priority Program of credit required for Brazilian equipment Built for Thermoelectricity (PPT) promoted by in the Pecém Industrial and Port Complex, the new the Brazilian government in February 2000, plant, whose construction works started in March following the serious crisis in the supply of 2002, lies on 70,000 square meters and has the electricity suffered by the country as a result capacity to supply electric power to a population of of the drought it faced. The primary objective around 1,200,000 inhabitants, between industrial Enersis / 2003 annual report 51 and residential clients. We should point out that the was perceived to assure the supply of energy to Coelce, Fortaleza thermoelectric station, which is capable of a company that distributes energy in the State of Ceará covering 30% of the current electricity consumption of and belongs to Enersis. It is sufficient to mention that Ceará, already has a contract that assures the sale of during the 2001-2003 period, sales of energy in the all the energy it generates. The start-up of the new State of Ceará rose by 10.2%, whilst the number of Fortaleza plant included in Endesa’s Strategic Plan for clients increased by nearly 250,000 Latin America, was justified, on the one hand, by the interest of the Company to increase its relative weight in the generation business in Brazil (1%), less than it has in distribution (4.6%), and on the other, by the wish to accompany the important growth being experienced by the Brazilian electric market which, undoubtedly, means taking advantage of the business opportunities that exist in that country. Furthermore, this investment generation Niteroi, Rio de Janeiro, Brazil distribution Colombia 1,972,016 clients Peru 891,589 clients Brazil 4,160,181 clients Argentina 2,117,254 clients 53 Chile 1,340,717 clients Las Condes, Santiago, Chile Chilectra information of the company BOARD OF DIRECTORS Chairman Jorge Rosenblut Vice-Chairman José M. Fernández Directors Pedro Buttazzoni Hernán F. Errázuriz Marcelo Llévenes Alberto Martín Álvaro Quiralte SENIOR EXECUTIVES Chief Executive Officer Rafael López Chief Communications Officer Marcelo Castillo Legal Counsel Gonzalo Vial Chief Regional Distribution Officer Marcelo Silva Chief Regional Services Officer Cristóbal Sánchez Chief Financial Officer Juan Pablo Spoerer Chief Planning and Control Officer Jorge Faúndez Chief Regulation Officer Guillermo Pérez Chief Operations Officer Juan Camilo Olavarría Chief Marketing Officer Alfredo Herrera Chief Contract Control Officer Victor Orduña Chief Human Resources Officer Carmen Paz Urbina Chief Technical Officer Alejandro Gómez Chief Corporate Business Officer Christian Mosqueira 55 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 Nº 0321 External Auditors KPMG Jeria y Asociados Auditores y Consultores Ltda. Number of shares 366,045,401 Number of shareholders 5,999 Subscribed and Paid-in Capital (ThCh$) 284,940,949 Trading name on Chilean Stock Markets Chilectra Participation of Enersis (direct and indirect) 98.25% Corporate purpose Operate in the country or abroad in the distribution and sale of hydroelectric, thermal, caloric or any other form of electric energy. distribution Chilectra is the largest electric energy Furthermore, in the case of Codensa in Colombia, distribution company in the country. It serves it has the responsibility for the commercial area 33 boroughs of the Metropolitan Region and for the control of energy losses In 2003, the and covers 2,118 square kilometers within its physical sales of energy reached 10,518 GWh, an concession area, including the zones serviced increase of 5.7% with respect to the same period of by Empresa Eléctrica Colina Ltda. and Luz Andes 2002. With regard to the supply to Large Clients, the 56 Ltda. It has 661 kilometers of different high new business projects and the expansion of capacity tension circuit lines, 53 sub-stations and 127 requested amounted to 90,000 KW. The renewal power transformers with a capacity of 5,558 of important long-term contracts amount to over MVA Enersis, its principal shareholder 3,300 GWh in projected sales of energy. We should and controller with a direct participation of especially mention the start-up of the new Aguas 98.24% of its equity, has chosen Chilectra as Servidas La Farfana wastewater treatment plant its technical and administrative operator of the belonging to Aguas Andinas, considered one of the 5 investments in Cerj and Coelce in Brazil, Edesur largest plants of this type in the world In addition, in Argentina and Edelnor in Peru in 2003 Chilectra purchased energy from various Enersis / 2003 annual report generators in the country, the most important being: AES market, maintaining leading levels of efficiency in the Gener (34.5%), Endesa Chile (32.5%), Colbun (18.5%), Latin American area. In this way, we would point out that Pangue (10.9%) Puyehue (0.9%) and others (2.7%) the loss of energy index, accumulated as of December The tariffs for the supply of electric energy, in accordance 2003, was 5.6%. This figure permitted Chilectra to be, with the sector’s legislation (Decree Law Nº 1 of 1982 once more, one of the most efficient companies in the issued by the Ministry of Mining) are set every four years. world in controlling losses. These results are due to the During 2003, Chilectra submitted to the authorities continuous efforts of the company in this activity, taking 57 all the information required in accordance with the a series of steps and making investments in new projects current legislation for the process of setting the tariffs on technical measures as well as in the control and on distribution. This process will conclude in November maintenance of those already in existence, added to the 2004 with the publication in the Official Gazette of the permanent preventative and corrective actions carried new decree that will set the tariffs for the next period out on site The staff headcount of Chilectra as of Chilectra has consolidated in the energy distribution December 31, 2003 amounted to 745 people, including distribution the personnel in Chilectra, Luz Andes and Empresa as an example, during the year and jointly with Eléctrica de Colina With respect to the business the Association of Bread Makers, Indupan A.G. and activities, as of December 31, 2003 the total number the National Environmental Corporation, Conama, of clients of Chilectra was 1,340,717, an increase of Chilectra presented an Electric Heater for Chilean 1.6% with respect to the same date of the previous Ovens as a solution directed at energy reconversion. year During the year 2003 Chilectra boosted its New payment channels were also implemented 58 process of strengthening and positioning the company (Servipag and Internet), the consumption bill was as a source of clean, safe and convenient energy to redesigned to incorporate shadings and to include the market, responding to the new requirements in a magazine with information and entertainment. the area of technological innovation, safety, lighting Chilectra continued its consolidation as an integral and source of heat. Amongst the principal activities in provider of electric services and products in the the year, Chilectra continued with the promotion of its home, companies and industries. In this perspective, Full Electric service that permits houses, apartments Chilectra intensified its sales plan of products that and industries a complete operation through the utilize electric power as fuel, as well as services such use of electric power at competitive prices Thus, as insurance on protected energy As a result of Enersis / 2003 annual report the actions taken during 2003, Chilectra achieved third life for its inhabitants. Amongst the activities carried out place in the Ranking of Concessionaire Companies of during the year 2003, we highlight the recovery of the Public Distribution Services and first place amongst the historic heritage, the promotion of the use of electricity, companies with more than 50,000 clients, in accordance prevention of juvenile drug addiction, the promotion of with the ranking drawn up by the Superintendency of reading and literary creation, amongst other projects Electricity and Fuels In December 2003 Chilectra had the satisfaction of receiving the prize for Social 59 Responsibility awarded by the Society for Fomenting Industry (SOFOFA) in recognition of the efforts made by the company to strengthen its relationship with the community and contribute towards a better quality of Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 426,823 (304,334) (34,438) 88,052 (59,338) 51,470 2002 401,917 (281,512) (32,212) 88,193 (131,220) (31,312) Var 02-03 24,906 (22,822) (2,226) (141) 71,882 82,782 % Var 6.2% (8.1%) (6.9%) (0.2%) 54.8% 264.4% distribution Puerto Madero, Buenos Aires, Argentina Edesur information of the company SENIOR EXECUTIVES Chief Executive Officer José María Hidalgo Chief Environmental and Quality Officer José María Gottig Chief Communications Officer Daniel Horacio Martini Chief Internal Audit Officer Jorge Lukaszczuk Legal Affairs Director Alvaro Eduardo Estivariz Human Resources Director Héctor Hernán Ruiz Marketing Director Sandro Ariel Rollan Distribution Director Daniel Héctor Colombo Services Director Daniel Roberto Alasia Planning and Financial Control Director Juan Grande Administration and Finance Director Juan Eduardo Verbitsky 61 Corporate Name Empresa Distribuidora Sur S.A. BOARD OF DIRECTORS Chairman Rafael Fernández Vice-Chairman Rafael López Directors Rafael Arias Pablo Alejandro Ferrero Alfredo MacLaughlin Marcelo Silva Julio Valenzuela Gonzalo Vial Jorge Volpe Deputy Directors Pedro Eugenio Aramburu Alan Antes Manuel María Benites Jorge G. Casagrande Santiago Daireaux Roberto Fagan Horacio Babino Mariano F. Grondona Pablo Martin Lepiane Type of company Stock Company Tax Register Number 30-65511651-2 Address San José 140 (1076) Capital Federal, Argentina Telephone (54-11) 4370 3700 Fax (54-11) 4381 0708 Web Site www.edesur.com.ar E-mail servicio@edesur.com.ar External Auditors Deloitte & Co. S.R.L. Number of shares 898,585,028 Number of shareholders 141 Subscribed and Paid-in Capital (Ar$) 2,076,134,560 Participation of Enersis (direct and indirect) 65.10% Corporate purpose Distribution and sale of electric power in the southern zone of Buenos Aires and other areas of the Province of Buenos Aires and related Services. distribution Edesur’s principal purpose is the distribution With respect to the tariff process, the company’s and sale of electricity in the southern zone operations during the year 2003 continued to be of the autonomous city of Buenos Aires and affected by the stipulations of the Public Emergency twelve districts in the Province of Buenos Law decreed in January, 2002. These established, Aires. It has a concession area that covers amongst other measures, the freezing of the tariffs 3,309 square kilometers The financial on public services at values in Argentine Pesos similar 62 restrictions obliged the company to develop to those in place before the devaluation. Only in the the operating, maintenance and investment month of October was the Government authorized by activities under severe budgetary limitations. law to renegotiate all the public service contracts in a In 2003 investments were made for a total of process that should conclude in December 2004. This Ar$ 111 million with the purpose of maintaining will permit the adjustment of the contracts beyond the supply and quality of the service Physical the bounds of the current regulatory framework and sales amounted to 12,638 GWh, representing an contemplates the possibility of approving increases increase of 4.1% with respect to the year 2002 for account of the results of the renegotiations At Enersis / 2003 annual report the beginning of December 2003, the first formal meeting business activities, as of December 31, 2003 the total took place between the representatives of the electricity number of clients of Edesur amounted to 2,117,254, a transmitting and distribution companies and the Unit net increase of 1.3%. The staff complement amounted to for the Renegotiation of Works and Services Contracts 2,258 people Faced with the unprecedented economic at which a chronogram of activities was handed out crisis in Argentina, in 2003 Edesur directed its business with the definition of “partial agreements” in a term activities towards trying to contain the loss of energy of six months and the signature of the new contracts, and delayed payments, the optimization of the cash 63 as stated, by December 2004 With respect to the flows and the quality of the processes. As of December (cid:37)(cid:86)(cid:79)(cid:76)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:79)(cid:70)(cid:192)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:67)(cid:76)(cid:73)(cid:69)(cid:78)(cid:84)(cid:83) (cid:48)(cid:72)(cid:89)(cid:83)(cid:73)(cid:67)(cid:65)(cid:76)(cid:192)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83) (cid:46)(cid:85)(cid:77)(cid:66)(cid:69)(cid:82)(cid:192)(cid:79)(cid:70) (cid:67)(cid:76)(cid:73)(cid:69)(cid:78)(cid:84)(cid:83) (cid:8)(cid:73)(cid:78)(cid:192)(cid:84)(cid:72)(cid:79)(cid:85)(cid:83)(cid:65)(cid:78)(cid:68)(cid:83)(cid:9) distribution 64 31 the level of losses was 11.8% and during the year punctual payments improved slightly to 99.1% of the total invoicing With the purpose of responding to the new needs of the clients, the company developed new products and services amongst which we highlight the collection for other services and the advertising by third parties on the invoices. Furthermore, in the context of the serious social crisis, Edesur has implemented ideas that tend to demonstrate its social responsibility and its integration into the communities in which Enersis / 2003 annual report it operates and develops its activities: a program with is not in default. As a recognition to its performance, the Food Aid in zones of extreme poverty jointly with Caritas company was granted an improvement in its credit risk Argentina for the donation of the change. Donation rating, the only such case among the companies in the towards the emergency created by the floods in Santa sector Fe. Search for lost children through the electricity invoices, amongst others From the financial point of view, the company has been able to refinance its entire debt maturities, being one of the few companies that 65 Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 183,942 (161,166) (28,023) (5,247) (9,347) (27,101) 2002 201,473 (183,448) (30,891) (12,866) (13,586) 8,287 Var 02-03 (17,531) 22,282 2,868 7,619 4,239 % Var (8.7%) 12.1% 9.3% 59.2% 31.2% (35,388) (427.0%) distribution Lima, Peru Edelnor information of the company BOARD OF DIRECTORS SENIOR EXECUTIVES Chairman Reynaldo Llosa Vice-Chairman Ignacio Blanco Directors Fernando Bergasa Cristián Herrera José M. Hidalgo Guillermo J. Morales Ricardo Vega Chief Executive Officer Ignacio Blanco Chief Marketing Officer Enrique Demarini Chief Human Resources Officer Rocío Pachas Chief Technical Officer Walter Sciutto Chief Administration and Juan Yamamoto Legal Counsel Luis Salem 67 Corporate Name Empresa de Distribución Eléctrica de Lima Norte S.A.A. Type of company Limited Liability Stock Company Tax Register Number 20.269.985.900 Address Jr. Teniente César López Rojas Nº201, Rub. Maranjas, San Miguel, Lima, Perú Control Officer Telephone (51-1) 561 2001 Fax (51-1) 452 3007 Web Site www.edelnor.com.pe e-mail enlinea@edelnor.com.pe External Auditors Gris, Hernández y Asociados S.C. - Deloitte & Touche Number of shares 1,074,902,874 Number of shareholders 867 Subscribed and Paid-in Capital (Pe$) 1,074,902,874 Participation of Enersis (direct and indirect) 33.41% Corporate purpose distribution, transmission and generation of electric power distribution Edelnor is a concessionaire of the electricity the year 2003, physical sales of energy amounted public service for the northern zone of to 3,972 GWh, an increase of 2.6% with respect Metropolitan Lima and the Constitutional to the same period of 2002 During the year Province of Callao, as well as the Provinces 2003, Edelnor purchased energy from 6 generating of Huaura, Huaral, Barranca and Oyón. It companies: Electroperú (51.9%), Edegel (24.8%), serves 52 districts on an exclusive basis and Eepsa (4.5%), Egenor (14.0%), Cahua (4.4%), 68 shares another 5 districts with the distribution Pacasmayo (0.3%) and the other 0.1% corresponds company for the southern zone In the to the self generation of the isolated systems that metropolitan zone, Edelnor’s concession feed the rural areas in the zone of Norte Chico covers principally the industrial area of Lima With respect to the distribution tariffs, for Edelnor and some heavily populated districts of the these are set every four years and are determined city. The concession zone granted to Edelnor considering as a basis, a model of an efficient covers a total of 2,440 square kilometers of distribution company and taking into account which 1,838 square kilometers correspond to the commercial costs associated with the client, the northern part of Lima and Callao In standard losses of power and energy, standard costs Enersis / 2003 annual report of investments, maintenance and distribution operations and expand the electricity and public lighting systems per unit of power supplied. The last adjustment of tariffs and to implement corporate computer systems To came into force on November 1, 2001 and shall be in this date, there are close to 4,500 sub-stations with force until October 31, 2005 Energy losses as of measured distribution, 75% of the total sub-stations of december 2003 were 8.4%. This result was achieved the company, with balances of energy that permit the following the strategic plan based on the follow-up of optimization of inspection costs and the assignment of the losses by distribution sub-station. For this reduction the resources available in a more rapid and adequate 69 to be possible, it was vital to first install totalizers in each manner, achieving a substantially speedier detection of sub-station, using as an installation criteria a decreasing theft. This, for sure, does not merely mean a temporary order according to the level of losses of the feeders, thus solution but also a medium and long term one, which in maximizing the return on the investment During the time will permit a sustainable reduction in the company’s year, Edelnor invested US$ 22 million mainly to improve losses of energy. Furthermore, the appropriate policy distribution 70 on power cuts and the reduction in the invoicing period from 1.5 days down to 1 day made a significant contribution towards obtaining an index of 100.5% punctual payments As of December 31, 2003, the number of clients came to 891,589 which represents an increase of 2.3% with respect to the same date of the previous year. On the other hand, the staff complement of Edelnor as of December was 554 people Within Edelnor’s policy of providing the best service to its clients, contracts have been signed for collection services of bills-invoices with such companies as TIM, Bellsouth and Cable Express and the shared collection agreement with Telefónica Enersis / 2003 annual report and Sedapal continues. Through these contracts and September 2003 Edelnor placed its sixth corporate bond agreements, clients can enjoy the convenience of paying issue on the local market, for an amount of approximately in one single place, in any of the Service and Payments US$ 11.4 million at 4 years, achieving a cut-off rate of Centers, both Edelnor’s bills and those of the other 4.47%. A new issue approved for up to a maximum of US$ companies with no added cost Finally, we would 50 million is kept current with the purpose of maintaining mention that a new Electric Power Receipt format was active the access to the local money market and face the designed. This arose as part of the policy of continuous obligations to refinance 71 improvement of the company with the object of being able to inform, foment and offer the products and services to the more than 800,000 residential clients in the area under concession In its financial activities, in Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 175,947 (132,315) (17,094) 26,538 (3,072) 13,078 2002 205,670 (152,721) (19,725) 33,224 (943) 19,957 Var 02-03 (29,723) 20,407 2,631 (6,686) (2,129) (6,879) % Var (14.5%) 13.4% 13.3% (20.1%) (226.0%) (34.5%) distribution Cabo Frio, Rio de Janeiro, Brazil Cerj information of the company BOARD OF DIRECTORS SENIOR EXECUTIVES Chairman António Melo Martins Vice-Chairman Gonzalo Carbó José Alves de Mello Franco Directors Alfonso Arias (Director of Enersis) Marcelo Llévenes Rafael López Fernando Nadal Francisco C. Pereira Marcelo Silva Carlos Silva de Almeida Deputy Directors Joaquim Ferreira da Silva José Alves de Mello Antonio José Sellare Fernando G. Urbina Chief Executive Officer José A. Inostroza Chief Regulations and Energy Officer José Alves Chief Administration and Finance Officer Julio Moratalla Chief Marketing Officer Gonzalo Mardones Chief Technical Officer María M. L M Olano Chief Human Resources Officer Eunice Rios Guimaraes Chief Institutional Relations Officer Mario de Carvalho Rocha Chief Losses Officer Claudio M. Rivera 73 Corporate Name Cerj-Companhia de Eletricidade do Rio de Janeiro Type of company Stock Company Tax Register Number 33.050.071/0001-58 Address Praça Leoni Ramos Nº1, Säo Domingos, Niterói, Rio de Janeiro, Brazil 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 Number of shares 2,895,563,869,685 Number of shareholders 1,227 Subscribed and Paid-in Capital (R$) 915,424,306 Participation of Enersis (direct and indirect) 71.82% Corporate purpose Generation, transmission, distribution and sale of electric power. distribution Cerj distributes electric power to a large part of During the year 2003, Cerj had to confront the the State of Rio de Janeiro in Brazil, supplying periodic process of reviewing the tariffs corresponding a population of over 8 million inhabitants to its concession contract. This process must be carried belonging to 66 boroughs in an area of 31,741 out every 5 years with the exception of the first one square kilometers. The principal areas in which that was due in 2003. The percentage adjustment in it provides its services are Niterói, Sao Gonçalo, tariffs was determined at 15.52% and a further 1.3% 74 Petrópolis, Campos and the Los Lagos Zone for its productivity factor The company paid special The sales of energy in 2003 amounted to 7,398 attention to the control of energy losses for which it GWh, an increase of 3.5% with respect to the implemented a series of projects with the purpose of previous year. In order to satisfy this market, reducing this level. In 2003, the company managed the company purchased energy from Furnas to focus on the more problematic neighborhoods (58.6%), Itaipú (19.1%), CIEN (16.7%), Enertrade and to segment the losses by geographic zones and (3.3%) and the rest was self-generated (2.3%) type of client: Improvements were made to the Enersis / 2003 annual report computer system and to the processes that permitted an inspected 515,805 clients, regularizing 159,763 clients. increase in efficiency and effectiveness in the detection With respect to large clients, the company inspected of theft. Police and legal actions against thieves were 14,477 clients, regularizing 1,409 of them Finally, also intensified. However, as a result of the variation in innovative solutions were created and tested to reduce tariffs mentioned above and the current economic crisis, losses such as: 1) The DAT network, directed at minimizing the index came to 23.6% In the areas with a high the fraudulent connection of clients in areas with high 75 index on losses (PIMT), the company attended 132,003 losses; 2) new alarm and remote measuring technology clients of which 53,850 clients were regularized. In in the process of being adopted by large clients; and 3) the areas with traditional regularization, the company new actions for treatment of the poor areas (mass census (cid:37)(cid:86)(cid:79)(cid:76)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:79)(cid:70)(cid:192)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:192)(cid:65)(cid:78)(cid:68)(cid:192)(cid:67)(cid:76)(cid:73)(cid:69)(cid:78)(cid:84)(cid:83) (cid:48)(cid:72)(cid:89)(cid:83)(cid:73)(cid:67)(cid:65)(cid:76)(cid:192)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83) (cid:46)(cid:85)(cid:77)(cid:66)(cid:69)(cid:82)(cid:192)(cid:79)(cid:70) (cid:67)(cid:76)(cid:73)(cid:69)(cid:78)(cid:84)(cid:83) (cid:8)(cid:73)(cid:78)(cid:192)(cid:84)(cid:72)(cid:79)(cid:85)(cid:83)(cid:65)(cid:78)(cid:68)(cid:83)(cid:9) distribution for the application of low income tariffs, reforms discipline through operating and administrative to the client’s internal installations and a general actions that permitted a better payment behavior by agreement with government entities on the payment the clients. In this way, in 2003 the power cuts due to of consumption in the shanty towns) Furthermore, unpaid bills rose by 8% to 960,000 and reconnections Cerj’s performance permitted a rise in the collections rose by 17% with respect to the year 2002, with an and recoverability, achieving a 97.4% success In improved replacement timing Just as the business 76 2003, the total number of clients of Cerj reached activity of Cerj during the year 2003 was principally 1,905,202, which represented an increase of 7.1% focused on increasing the index on collections, there with respect to the year 2002. On the other hand, were also projects directed at improving the quality as of December 2003, the company had 1,517 of customer service. Amongst these projects we employees, mainly operating technicians This highlight the new contractual mode practiced in the year, the main focus was on the search for market Call-Cerj Attention Center which has produced positive Enersis / 2003 annual report results that can be perceived in terms of agility and quality of attention. Similarly, we highlight the Letter- Service and Cerj Easy projects, both destined to improve customer service 77 Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 317,593 (282,156) (10,925) 24,512 (151,141) 2002 348,613 (306,380) (21,624) 20,608 (40,163) (98,773) (9,103) Var 02-03 (31,020) 24,224 10,699 3,904 (110,978) (89,670) % Var (8.9%) 7.9% 49.5% 18.9% (276.3%) (985.1%) distribution Fortaleza, Ceará, Brazil Coelce information of the company BOARD OF DIRECTORS SENIOR EXECUTIVES Chairman Marcelo Llévenes Vice-Chairman Luciano Galasso Directors Luis Gastao Bitencourt Jorge Parente José Alves de Mello Fernando de Moura Fernando Nadal Manuel das Neves Bento Manuel Soto Fernando Urbina Antonio Uchoa Deputy Directors José Nunes de Almeida Priscila Cassoli Juarez Ferreira de Paula Luiz Fernando Gonçalves Antonio A. Gouvêa Vieira Isabel Carvalho Pinto Antonio B. Pires e Albuquerque Rogério Cruz Themudo Antonio C. Viana de Barros Chief Executive Officer Cristián Fierro Chief Institutional Projects Officer José Nunes de Almeida Chief Marketing Officer Luciano Alberto Galasso Chief Distribution Officer José Távora Batista Chief Planning and Control Officer Abél Pérez Claros Chief Human Resources Officer José R. Ferreira Barreto Chief Administration and Finance Officer Antonio O. Alves Texeira 79 Corporate Name Companhia Energética do Ceará Type of company Limited Liability Stock Company Tax Register Number 07.047.251/0001-70 Address Av. Barão de Studart, 2917/83, Bairro Dionísio Torres, Fortaleza, Ceará, Brazil CEP 60.127-900 Telephone (55-85) 216 1100 Fax (55-85) 216 1410 Web Site www.coelce.com.br E-mail investor@coelce.com.br External Auditors Deloitte Touche Tohmatsu S/C Ltda. Number of shares 155,710,600,088 Number of shareholders 4,411 Subscribed and Paid-in Capital (R$) 433,057,723 Participation of Enersis (direct and indirect) 29.43% Corporate purpose Production, transmission, distribution and sale of electric power and related services in the State of Ceará. distribution Coelce is the electric power distribution thermographic inspections, with which the quality company of the State of Ceará, in the northeast of service indicators improved considerably The of Brazil, covering a total concession area of sales of energy as of December 31, 2003 amounted to 146,817 square kilometers in 184 districts. In 5,897 GWh, an increase of 6.1% in relation to the same this area, the company serves a population date in 2002. In order satisfy demand, the company of more than seven million inhabitants. purchased a total of 6,825 GWh, 6.8% greater than 80 Complying with its objective of providing the accumulated figure for the previous year With a better service to its clients, during 2003, regard to the tariff process, as per the definition in Coelce performed a series of activities in the concession contract, the tariffs were readjusted protection and maintenance of its electricity by 31.29% as from April 22, 2003. In addition to this, system amongst which we highlight the other extraordinary revenues were acknowledged inspection of more than 124,000 kilometers making the total adjustment 31.8%. This increase of lines, the replacement of transformers and was applied in differentiated stages according to the Enersis / 2003 annual report various levels of tension, with a lower percentage on number of clients served by Coelce as of December 31 was the clients of low tension and a greater one for those of 2,254,979, reflecting a growth of 12.2% with respect to high tension. This falls within the tariff realignment plan the year before. With regard to the number of employees promoted by the government over the next five years as of December 31, 2003, this amounted to 1,375 people The TTM (Trailing Twelve Months) energy losses as In respect of its relationship with clients, customer of December 31, 2003 came to 13.5%, slightly higher service improved, a 3+1 Insurance was implemented 81 than the level registered in the year 2002. In regard to and the Coelce Plus brand was created to sell the collections, the company managed to increase these services of maintenance to its clients. Furthermore, from 98.4% to 99.7% as of December 2003 The the company continued with its improvement in the distribution 82 quality and continuity of the distribution of electric energy service. These achievements have been acknowledged in the last opinion poll carried out by the National Electric Energy Agency (Aneel) for the northeast sector of Brazil where Coelce gained the first place amongst the larger distribution companies During the year 2003, Coelce made investments in a project to remodel and expand the agencies that attend the public in order to improve customer service, respond to the new functional needs and uniform the visual aspect of the offices, Enersis / 2003 annual report strengthening the Coelce brand image before its clients. through educational activities and mobile demonstrations Furthermore, we would point out that in a new pioneering such as, for example, educational shows on electric power project during the year 2003, Coelce, jointly with the with safety in schools and neighborhoods Finally, insurance companies, offered its clients a collection of Coelce was selected from among 46 participants as personal accident, financial protection and residential the best energy distribution company in Brazil in the insurance policies With respect to the community, Financial Performance category, as per the award from 83 Coelce invested approximately US$ 2 million in social the Brazilian Association of Electric Energy Distributors and cultural projects through the State Law to Promote (Abradee) Culture. It also developed project in benefit of society Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 207,387 (158,070) (29,622) 19,695 (25,742) (10,188) 2002 230,002 (164,954) (40,713) 24,335 756 20,555 Var 02-03 (22,615) 6,884 11,091 (4,640) (26,498) (30,743) % Var (9.8%) 4.2% 27.2% (19.1%) (3504.5%) (149.6%) distribution Bogotá, Colombia Codensa information of the company BOARD OF DIRECTORS SENIOR EXECUTIVES Chairman Andrés Regué Directors Israel Fainboim José María Martínez Moisés Rubinstein Cristóbal Sánchez Juan Pablo Spoerer José Antonio Vargas Deputy Directors David Acosta Germán Castro Silvia Escobar Henry Navarro Roberto Ospina Lucía Piedrahita Carmenza Saldías Chief Executive Officer José María Martínez Chief Marketing Officer David Felipe Acosta Chief Communications Officer Emilia Sarracino Chief Distribution Officer Germán Castro Chief Financial Officer Lucía Piedrahita Legal Counsel Alvaro Camacho Chief Planning and Control Officer Roberto Ospina Chief Human Resources Officer Carlos Alberto Niño Chief Regulation Officer Omar Serrano 85 Corporate Name Codensa S.A. E.S.P. Type of company Private Stock Company Tax Register Number 830.037.248-0 Address Carrera 13 A N° 93-66 Bogotá, Colombia Telephone (57-1) 601 6060 Fax (57-1) 601 5917 Web Site www.codensa.com.co e-mail tservice@codensa.com.co External Auditors Deloitte Colombia Ltda. Number of shares 132,093,274 Number of shareholders 77 Subscribed and Paid-in Capital (ThCol$) 1,320,927,675 Participation of Enersis (direct and indirect) 21.65% Corporate purpose Distribution and sale of electric power and activities related, complementary to or connected with the distribution and sale of energy, carrying out works, designs and consultancy in electrical engineering and the sale of products for the benefit of clients distribution Codensa distributes and sells electric power in where the charge for distribution was raised by an the City of Bogotá and in 96 municipal districts average of 38% with respect to the previous tariffs. in the Departments of Cundinamarca, Boyacá This adjustment was made in two stages: 15.29% and Tolima. In total, the company’s area of between October 2002 and April 2003 and the operations comprises 14,087 square kilometers rest on a gradual basis from September 2003 until of which 1,587 square kilometers correspond completing the final 38% towards the middle of 2004. 86 to urban areas Physical sales amounted to These new adjustments will reign from September 1, 9,254 GWh in 2003, representing an increase 2003 until the end of 2007 During this year, the of 2.7% with respect to the same period of the company managed to lower its TTM (trailing twelve previous year. With regard to the demand for months) energy losses which as of December showed energy in 2003, this reached 10,310 GWh, an accumulated losses of 10.2%, an improvement of increase of 2.4% in comparison with the year 0.1% with respect to last year. The company continued 2002 The year 2003 saw the conclusion of with its plans developed for the collection activity, the process of setting tariffs for the company, achieving at the end of the year an improvement Enersis / 2003 annual report in collections, closing the year 2003 with a percentage number of people employed by Codensa as of December of 99.7% as compared to 98.4% in 2002 During the 31, 2003 was 858, essentially comprised of professionals year, 125,729 regularization inspections were made and and technicians In business matters, the company 27,017 job orders were issued. For the Large Consumers was consolidated as the leader in complementary services 9,994 inspections were carried out and 907 job orders such as the financing of household electrical appliances issued. The control of energy losses area invoiced 80 GWh and invoicing of insurance, to such an extent that the corresponding to CNR The company’s number of company currently has 128,000 of its own clients of these 87 clients as of December 31, 2003 amounted to 1,972,016, businesses. Furthermore, Codensa achieved an average an increase of 3.2% over the figure for the year 2002. The of 8.1 points out of 10 in the perception of quality of distribution 88 service ratings. Some of the tasks that contributed towards this good perception were the customer service program in which 168 operating contractors participated and the program of self-preparation and training for 274 workers of the company’s sub-contracting companies With respect to the performance in quality and environmental issues in 2003, the company obtained the ISO 14001 certification of its Environmental Protection System. At the same time, the implementation of the Quality Control System reflected a progress of 81% at the end of the year. Also, the company developed the Enersis / 2003 annual report diagnosis and the action plan for the implementation needs of the Company. The Legal Activity permitted an of the Occupational Health and Safety System (OHSAS adequate control of the legal risks to which the company 18001) With respect to legal matters, the company is exposed In its social activities, Codensa carried out adopted the Code of Corporate Management and the different activities such as the Guarding Energy program Code of Good Management, which include all the criteria with the purpose of training young people to promote that the norms require for the institutions interested the productive, safe and efficient use of energy and in reflecting values. In order to achieve this, it was the environmental responsibility, the awareness of the 89 necessary to modify some of the articles in the by-laws obligations and rights of the clients, and the programs of and also reform others in order to adapt them to the illuminating cathedrals Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 292,155 (248,022) (10,402) 33,731 6,344 18,020 2002 334,820 (283,172) (29,884) 21,764 (8,595) (6,723) Var 02-03 (42,665) 35,150 19,482 11,967 14,939 24,743 % Var (12.7%) 12.4% 65.2% 55.0% 173.8% 368.1% distribution Feeder Construction for Communications Antenna, Chile other businesses Colombia Synapsis CAM Peru Synapsis CAM Brazil Synapsis CAM Argentina Synapsis CAM 91 Chile Synapsis CAM Inmobiliaria Manso de Velasco Synapsis’ Office, Chile Synapsis information of the company AGENTS SENIOR EXECUTIVES Cristóbal Sánchez Victor H. Muñoz Chief Executive Officer Victor H. Muñoz Chief Financial and Admin. Officer Rodrigo A. Morelli Chief Consulting Services Officer Gustavo Pardo Chief Operations Officer María A. Letelier Chief Plant Officer José M. Gil Chief New Business Officer Manuel de Andrés 93 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, Piso 10 Santiago, Chile Telephone (56-2) 397 6600 Fax (56-2) 397 6601 Web Site www.synapsis-it.com e-mail synapsis@synapsis-it.com External Auditors Deloitte & Touche Soc. de Auditores y Consultores Ltda. Subscribed and Paid-in Capital (ThCh$) 3,943,580 Participation of Enersis 100% Corporate purpose Supply and sale of services and equipment related to computers, data processing, telecommunications systems and control systems for public utility companies and others, both domestic and foreign. other businesses Synapsis Soluciones y Servicios IT is the in the search and implementation of technical professional services company in information solutions to support the Business Process; the technology of the Enersis Group. Synapsis is Integration of services and products; Services of currently positioned as the leading company in Development, Implementation and Maintenance Latin America in IT solutions for Government of Systems; Outsourcing and Infrastructure 94 and service companies Its Head Office is Services; Data Centers, Contact Centers, located in Santiago, Chile and it has branch Mass Printing; and Consultancy, execution offices in the most important cities in the of projects and Support in Telecontrol and region: Buenos Aires, Argentina; Rio de Janeiro Telecommunications Currently, Synapsis and Fortaleza, Brazil; Bogotá, Colombia and does not only provide services throughout the Lima, Peru, assuring in this way, the coverage companies of the Enersis Group but it has also of the whole of Latin America Synapsis’ significantly increased the number of other principal areas of activities are: consultancy clients in its total portfolio of revenues In Enersis / 2003 annual report Chile, amongst the most important contracts within the Fleet Control System of the CCU (Compañía the Group awarded to Synapsis are the Technical Cervecerías Unidas) trucks; the extension for a Distribution System and the participation in the further 15 months of the ESVAL contract and the Communications and Telecontrol Projects for the implementation of all the systems for Aguas del El Salto Sub-Station (Chilectra); the hydroelectric Valle in the IV Region; the Televenta contract power plant projects and the execution of the for Autopista Central; and the new Contract for 95 project to renew the Operations Support Systems Data Processing for Smartcom In Colombia, Platform for Endesa Chile. With respect to contracts Synapsis was awarded the contracts for the Projects awarded from outside the group, we highlight the for Eléctrica del Norte de Santander, Ecopetrol, Heracles project for INP, the Government Social Acueducto de Bogotá and the Municipality of Security Authority, which makes the company Medellín. The latter is the first successful experience one of the principal technological partners of of an electronic municipal Government in the the Chilean Government; the implementation of world utilizing SAP technology In Panama, the other businesses project to implement the business system for return, the company achieved a growth of 54% Aguas de Panama IDDAN In Venezuela with respect to 2002, an operating return on the implementation of the business system sales close to 19% and a profit of nearly US$ 10 in ENELBAR was successfully concluded million thanks to having being awarded important In Brazil, the Cerj Call Center was put into contracts and to the execution of significant operation with which the operations for the projects for public and private companies in Latin 96 Enersis Group of companies in this country America Finally, following the strategic policy were consolidated In Peru, we highlight of Synapsis, during the year 2003, it transferred its the important developement achieved on the Business Synergy and Electric Distribution Systems project for the Control System of the company software factory to the Argentine subsidiary in San Gabán With respect to the operating Buenos Aires Enersis / 2003 annual report Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 45,283 (30,331) (6,214) 8,738 (292) 5,943 2002 50,028 (37,603) (6,178) 6,247 (467) 4,440 Var 02-03 (4,745) 7,272 (36) 2,491 (273) 1,503 % Var (9.5%) (19.3%) 0.6% 39.9% 58.7% (33.8%) 97 other businesses Candelaria Substation Mounting, Chile CAM information of the company Corporate Name Compañía Americana de Multiservicios Ltda. Type of company Limited Liability Stock Company Tax Register Number 96.543.670-7 Address Bulnes N°1238, Santiago, Chile Telephone (56-2) 389 7300 Fax (56-2) 389 7342 Web Site www.camchile.cl e-mail cam@cam.enersis.cl AGENTS Pantaleón Calvo Eduardo López DEPUTY AGENTS Andreas Gebhardt Cristóbal Sánchez SENIOR EXECUTIVES Chief Executive Officer Pantaleón Calvo Chief Executive Officer, CAM Brazil Fernando Foix Chief Executive Officer, CAM Peru Mario Albornoz Chief Executive Officer, CAM Colombia Carlos Restrepo External Auditors Deloitte & Touche Soc. de Auditores y Consultores Ltda. Legal Representative, CAM Argentina Mauricio Naser 99 Subscribed and Paid-in Capital (ThCh$) 2,572,038 Participation of Enersis 100% Corporate purpose Perform for its own account or on behalf of third parties and/or in association with third parties, both in Chile and abroad, general services, real estate services and building of real estate, import, export and distribution of products of any nature. other businesses CAM’s business is directed towards providing subsidiaries for their Measurement Laboratories integral, mass and multiservice solutions, services During 2003, CAM was awarded new taking advantage of its experience in operations contracts worth US$ 47 million in the different lines to service companies and its knowledge of of business it manages, of which 42.5% came from management and logistics. Furthermore, in third party clients and the other 57.5% corresponds recent years, CAM has positioned itself strongly to contracts with related companies. Of this last 100 in the sector of construction and assembly of percentage, US$ 5 million correspond to the award sub-stations and transmission lines The Head of joint contracts with Chilectra and for the transfer Office in Chile and its subsidiaries in Argentina, of networks and the construction of polyducts for Brazil, Colombia and Peru have consolidated highway concessions, the Subway system and the their regional presence, successfully expanding Ministry of Public Works In Chile, with respect to the portfolio of clients. The commitment to the lines of business for public service companies, we an excellent service made by CAM is reflected highlight the important contracts such as the Cut and in the ISO certifications obtained in all its Replacement contract signed with Aguas Andinas. In Enersis / 2003 annual report the area of Measuring Systems, the joint effort of CAM a Commercial and Technical Cooperation Agreement and Chilectra has permitted within its integral solutions, with COMPLANT International Trade Company from the the incorporation of Integrated Measuring Cells. Examples Popular Republic of China With regard to engineering, of these are Entel Chile, Clinica Alemana, Jumbo-Easy, construction and the assembly of electric sub-stations, the Florida Center Mall, Sodimac and Carrefour, amongst the company carried out a series of important works and others In order to assure the metrological quality projects, amongst which we highlight the assembly of the of the meters owned by the clients of Chilectra, CAM Los Maquis Sub-station and the assembly of the CMPC 101 signed a contract with the distribution company to carry Santa Fe and Pacífico Sub-station in Los Angeles An out a mass maintenance and control plan to verify the important level of activity and participation was achieved exactitude of 80,000 meters. A similar contract was in the Telecommunications Sector and the development signed with Empresa Eléctrica de Colina but for 20,000 and installation of the Monitoring Network for the meters Another important event was the signing of Autopista del Sol. It also built the Cellular Telephone other businesses site in Valle Nevado for Smartcom PCS and the installation of repeater equipment for Smartcom In the area of sales of electrical materials, Breakdown of sales by country outstanding amongst these was the business z signed with ANDE, a distribution company in Paraguay, for the sale of electrical materials, cells, 102 transformers and sectioners for an amount of its mass services initiated in previous years and, US$ 1 million Amongst the important events furthermore, it is now consolidated in the market as in the regional market, CAM Colombia stood out a supplier of electrical solutions for industrial clients for venturing into the non electric-related sector, CAM Argentina passed the audit renewing the into gas and water, thus becoming a leader in ISO 9,002/2000 on Quality and the ISO 14,001/1996 the supply of services to public utility companies on Environmental Matters for a further year for the During 2003, CAM Peru has strengthened Measuring Systems both in the laboratories and on its supply services, its measuring systems and site. In respect of the operation, outstanding were the Enersis / 2003 annual report works on normalizing the pumping chambers and wells and the replacement of meters for Aguas Argentinas. For Edesur, a full maintenance was carried out on the measuring equipment. In 2003, the CAM Brazil operation was expanded with the award of the contracts with Cerj and Coelce, reflected in the increase in invoicing of R$ 26 million with respect to the year 2002. This was 103 the beginning of the first two long term contracts with “Control and Identification of Losses”, a 5-year contract Cerj: “Laboratory Services and Integral Management for R$ 60 million and for the Cerj “Materials, Safety of Large Clients”, and “Control of Commercial Services” Material and Control of Project Materials Logistics”, a 5- In December, CAM Brazil won the bids for the Coelce year contract for R$ 23 million Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Administration and Sales Expenses Operating Income Non-Operating Income Net Income 2003 91,718 (71,828) (6,151) 13,739 (288) 10,820 2002 94,885 (74,422) (7,994) 12,469 (1,977) 8,062 Var 02-03 (3,167) 2,594 1,843 1,270 1,689 2,758 % Var (3.3%) (3.5%) (23.1%) 10.2% (85.5%) (34.2%) other businesses Enea Project, Santiago, Chile Manso de Velasco information of the company AGENTS Cristóbal Sánchez Andrés Salas SENIOR EXECUTIVES Chief Executive Officer Andrés Salas Legal Counsel Alfonso Salgado Chief Real Estate Development Officer Gustavo Cardemil ENEA Project Manager Bernardo Küpfer Corporate Name Inmobiliaria Manso de Velasco Ltda. Type of company Limited Liability Stock Company Tax Register Number 96.909.280-8 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 External Auditors Deloitte & Touche Subscribed and Paid-in Capital (ThCh$) 5,848,651 Participation of Enersis 100% Corporate purpose Purchase, sale, subdivision, division into lots, sale and operation, in any way, of any type of real estate for own account or on behalf of third parties. 105 other businesses Manso de Velasco centers its activities on the with the construction of roads linking it with Américo development of important real estate projects. Vespucio, San Pablo and the future concession During the year 2003 significant progress was expressway, Costanera Norte that should come made in real estate development and sale of into operation in the year 2005. These works will the different projects, destined principally to permit ENEA to have an excellent connection with the residential sector (Santuario del Valle and the nerve center of the city, which will permit an 106 Puerto Pacífico) and to the industrial sector important development of this Business Park The (ENEA) The ENEA Project corresponds to project is currently in Phase I that corresponds to the the real estate development of 1,000 hectares concept of an Industrial and Business Park. During strategically located in eastern Santiago, in the 2003, work started on improving the road links borough of Pudahuel, close to the Arturo Merino between the project and the main artery, Américo Benítez Airport. The evident roadway connection Vespucio, which, at the same time, will permit that the project has was strengthened in 2003 the sale of part of the land (Phase III-A) situated Enersis / 2003 annual report to the east of Américo Vespucio. The project has an Park. During the period sales amounted to Ch$ 3,648 innovative infrastructure and according to the master million Within this project is also Aguas Santiago plan green areas will be implemented that will offer Poniente S.A. that provides the water services associated better equipment and service areas to the subdivision with the ENEA real estate development project. As a and to its users During the fiscal year 2003 ENEA result of the significant sales achieved from the project, continued its progress with important advances in the the company was forced to activate the waterworks and 107 business area. New important companies joined our sewage infrastructure with which it has to serve, to date, Business Park, the most important being: Bredenmaster, more than 1,600 residential and industrial clients and Intertrade, Carlos Herrera A., Apresto Ltda. and the to treat 100% of the effluents from the project. In such continuation of the housing development projects such a perspective, Aguas Santiago Poniente is in a phase as the Santa Catalina II Project. Some companies that of notoriously increasing its financial value on having already form part of the project are carrying out works the assurance of the existence of clients associated to expand their center of operations within the Business to the development of ENEA that require the services other businesses provided by this company The Santuario del Nueva Libertad Street) close to important shopping Valle Project, located in the La Dehesa sector, has centers and only 5 minutes from the center of Viña been consolidated as one of the most important real del Mar During 2003, after the subdivision of estate development projects in the country, directed the Meseta into 9 sub-lots, which brought with it a at the sale of Single Home Residential Lots for the significant added value for its sale, the marketing high class segment of the population During the process had, as a result, the sale of 4 lots, generating 108 year 2003, sales of the lots located in Sector 6, the revenues of Ch$ 3,213 million In addition to the last lots to be developed, amounted to Ch$ 4,442 projects mentioned above, we would especially million. The sale of this sector concludes the sale of mention the Tapihue Project that contemplates this successful urban project The Meseta Puerto lots corresponding to the land that used to be the Pacífico Project is situated on land measuring more Tapihue, Amancay – Lot B – and La Petaca farms. than 35,000 square meters located in Viña del Mar, This land, jointly, covers an area of 7,302 hectares in with a privileged location (15 Norte Street with the borough of Til-Til in the Province of Chacabuco Enersis / 2003 annual report in the Metropolitan Region and possesses the ZDUC buildings and shops that are mainly rented to related qualification (Conditioned Urban Development Zone) companies or third parties, achieving revenues in 2003 in accordance with the Metropolitan Regulatory Plan. of Ch$ 1,680 million As of December 31, 2003 the Work is currently underway to regularize the water company had a total of 24 employees, distributed as rights and other requirements that imply added value follows: 4 executives, 9 professionals and technicians to the project Within the real estate business, and 11 clerical and other staff, outsourcing the 109 Manso de Velasco manages a total of 40,014 square engineering and architectural work required for the meters of constructed property corresponding to office various projects Summary of Income Statement Millions of Chilean Pesos Operating Revenues Operating Costs Selling and Administrative Expenses Operating Income Non-Operating Income Net Income 2003 11,334 (10,501) (1,691) (858) 2,075 1,307 2002 11,492 (6,037) (1,641) 3,814 (16,103) (10,036) Var 02-03 (159) (4,465) (50) (4,673) 18,178 11,342 % Var (1.4%) 74.0% 3.0% (122.5%) (112.9%) 113.0% other businesses liability statement The Directors and the Chief Executive Officer of Enersis, signatories to this declaration, are liable, under oath, for the truthfulness of all the information provided in the present annual report, in compliance with General Rule Nº 30 issued by the Superintendence of Securities and Insurance. CHAIRMAN Pablo Yrarrázaval Tax Register Number: 5.710.967-K DIRECTOR Ernesto Silva Tax Register Number: 5.126.588-2 110 VICECHAIRMAN Rafael Miranda Tax Register Number: 48.070.966-7 DIRECTOR Hernán Somerville Tax Register Number: 4.132.185-7 DIRECTOR Alfonso Arias Tax Register Number: 48.087.945-7 DIRECTOR Eugenio Tironi Tax Register Number: 5.715.860-3 DIRECTOR José Luis Palomo Tax Register Number: 51.316.595-F CHIEF EXECUTIVE OFFICER Mario Valcarce Tax Register Number: 5.850.972-8 Enersis / 2003 annual report other subsidiaries and related companies Distrilec Enersis Intenacional Investluz Corporate Name Distrilec Inversora S.A. Type of company Foreign Closed Stock Company Address San José Nº 140 (C1076AAD), Buenos Aires, Argentina Telephone (54-11) 4114 3000 Fax (54-11) 4114 3001/3002 External Auditors Deloitte & Touche Subscribed and Paid-in Capital (ThCh$) 301,356,842 Participation of Enersis (Direct or Indirect) 50.73% Corporate Name Enersis Internacional Type of company Foreign Stock Company Corporate Name Investluz S.A. Type of company Foreign Stock Company Address P.O. Box 309, Ugland House South Church St., Grand Cayman Cayman Islands Address Av. Barao de Studart Nº 2917, Bairro Dionísio Torres Fortaleza, Ceará, Brazil Telephone (345) 949 8066 Fax (345) 949 8080 External Auditors Deloitte & Touche Subscribed and Paid-in Capital (ThCh$) 206,727,605 Participation of Enersis (Direct or Indirect) 100% Telephone (55-85) 216 1123 Fax (55-85) 216 1423 External Auditors Deloitte & Touche Tohmatsu Subscribed and Paid-in Capital (ThCh$) 506,670,818 Participation of Enersis (Direct or Indirect) 52.00% Corporate purpose The exclusive purpose of capital investment in companies, already that have as their main activity the distribution of electric power. Corporate purpose Any legitimate activity related with energy or fuel. Corporate purpose Participation in the capital of Coelce and in other companies in Brazil and established or to be established abroad, as a shareholder. 111 BOARD OF DIRECTORS Chairman Rafael Lopez Vice-Chairman Rafael Juan Fernández Directors Alan Arntsen Mariano Florencio Grondona Marcelo Silva Gonzalo Vial Horacio Ricardo Babino Jorge Gustavo Casagrande Daniel Jorge Maggi Luis Miguel Sas Deputy Directors Luis Diego Barry Santiago Daireaux Manuel María Benítes Roberto José Fagan Pedro Eugenio Aramburu Rigoberto Mejía Nicolás Carusoni Pablo Alejandro Ferrero Jorge Roberto Barros Antonello Tramonti SENIOR EXECUTIVE Chief Executive Officer José Maria Hidalgo BOARD OF DIRECTORS Chairman Mario Valcarce (Chief Executive Officer Enersis) Director Máximo de la Peña (Enersis Chief Taxation Officer) BOARD OF DIRECTORS Chairman Cristián Fierro Directors Manuel Fernando das Neves José Renato Ferreira Luciano Alberto Galasso Silvia Pereira Abel Pérez Antonio Osvaldo Texeira SENIOR EXECUTIVE Chief Executive Officer Cristián Fierro other subsidiaries and related companies Distrilima Luz de Bogotá Endesa Market Place en Liquidación S.A. 112 Corporate Name Inversiones Distrilima S.A. Type of company Foreign Stock Company Address Tnte. César López Rojas Nº 201, San Miguel, Lima, Perú Telephone (51-1) 561 1604 Fax (51-1) 452 3007 External Auditors Gris Hernández y Asociados S.C. - Deloitte & Touche Subscribed and Paid-in Capital (ThCh$) 99,876,835 Participation of Enersis (Direct or Indirect) 55.69% Corporate purpose Investments in other companies, related with the distribution and generation of electric power BOARD OF DIRECTORS Chairman Ignacio Blanco Vice-Chairman Reynaldo Llosa Directors Fernando Bergaza Cristián Herrera José María Hidalgo José Chueca Marciano Izquierdo Deputy Directors Pilar Dávila Walter Sciutto Patricia Marcaró Luis Enrique Demarini Mario Albornoz Marco de Andrea Fernando Fort SENIOR EXECUTIVE Chief Executive Officer Ignacio Blanco (in liquidation) Corporate Name Endesa Market Place en Type of company Stock Company Address Rivera de Loira, 60 CEP 28042 ¿DONDE? OJO Telephone (34-91) 213 1000 Fax (34-91) 213 1072 External Auditors Deloitte & Touche Subscribed and Paid-in Capital (ThCh$) 5,024,427 Participation of Enersis (Direct or Indirect) 15.00% Corporate purpose B2B and new technologies LIQUIDATOR Jean Paul Zalaquett (in liquidation) Corporate Name Luz de Bogotá S.A. Liquidación S.A. Type of company Foreign Stock Company Address Carrera 13A Nº 93-66, Piso 6, Bogotá, Colombia Telephone (57-1) 601 5402 Fax (57-1) 601 5905 External Auditors Deloitte Colombia Ltda. Subscribed and Paid-in Capital (ThCh$) 125,218,347 Participation of Enersis (Direct or Indirect) 44.66% Corporate purpose Any legitimate commercial, industrial, financial, real estate, air, marine, mining or agricultural activity related to energy or fuels in any form or nature with supply to public utilities or that have energy as a prime input. II) Investments in electric power generating and distribution and particularly the acquisition of shares in any electric power generating, distribution or transmission company LIQUIDATORS Chief Liquidator Alvaro Pérez Deputy Liquidator Carlos Mario Restrepo Enersis / 2003 annual report consolidated financial statements I N D E X 1 1 7 C O N S O L I D A T E D B A L A N C E S H E E T S 1 1 8 C O N S O L I D A T E D I N C O M E S T A T E M E N T 1 1 9 C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y 1 2 0 S T A T E M E N T S O F C O N S O L I D A T E D C A S H F L O W S 1 2 2 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 8 2 A P P E N D I X U . S . G A A P 2 1 7 C O N S O L I D A T E D S I G N I F I C A N T E V E N T S 2 2 9 R A T I O A N A L Y S I S O F T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 113 consolidated financial statements REPORT FROM THE INSPECTORS OF ACCOUNT In accordance with the stipulations of Law Nº 18,046 on Limited Liability Stock Companies and in compliance with the mandate conferred by the Ordinary General Meeting of Shareholders held on March 31 2003, we have proceeded to examine the Financial Statements of Enersis S.A. for the period between January 1 and December 31 of the year 2003. Our task was centered on the verification, on a selective basis, of the match between the amounts included in the financial statements and the official regis- ters of the Company and for this purpose we compared the figures presented in the general ledger against the grouping and classification spreadsheets, in order to subsequently verify that these amounts, which represent the totals of the accounts under one item, coincided with those included in the financial sta- tements, We have no observations on this review. 114 Marcelo Villaseca Inspector of Accounts Luis Bone Inspector of Accounts Santiago, January 26, 2004 Enersis / 2003 annual report 115 consolidated financial statements consolidated balance sheets (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003 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 Prepaid expenses Deferred income taxes Other current assets 2002 ThCh$ 48,666,727 147,083,163 1,558,723 463,428,121 5,182,662 63,403,857 197,352,823 60,986,480 54,980,336 7,742,678 42,958,648 133,341,824 As of December 31, 2003 ThCh$ 26,370,232 256,254,606 11,155,741 467,170,365 8,362,627 94,194,266 17,060,125 44,308,194 61,286,338 16,452,494 69,459,772 73,928,782 Total current assets 1,226,686,042 1,146,003,542 116 PROPERTY, PLANT AND EQUIPMENT Land Buildings and infrastructure and works in progress Machinery and equipment Other plant and equipment Technical appraisal Acumulated depreciation 131,203,835 11,738,526,563 1,998,142,088 540,209,473 753,652,675 (5,183,481,869) 115,453,784 10,053,936,197 1,762,236,656 348,089,694 619,471,230 (4,802,827,051) Total property, plant and equipment, net 9,978,252,765 8,096,360,510 OTHER ASSETS Investments in related companies Investments in other companies Goodwill, net Negative goodwill, net Long-term receivables Amounts due from related companies Intangibles Accumulated amortization Other assets Total other assets TOTAL ASSETS The accompanying notes are an integral part of these consolidated financial statements 196,105,799 161,061,462 855,988,634 (96,124,680) 127,109,018 907,149 81,725,052 (34,994,773) 241,143,152 180,211,471 133,460,297 780,397,218 (79,234,632) 127,935,044 129,103,833 77,170,981 (39,272,322) 180,611,025 1,532,920,813 1,490,382,915 12,737,859,620 10,732,746,967 Enersis / 2003 annual report LIABILITIES AND SHAREHOLDERS´EQUITY CURRENT LIABILITIES: Short-term debt due to 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 Dividends payable Accounts payable Short-term notes payable Miscellaneous payables Amounts payable to related companies Acrued expenses Withholdings Income taxes payable Deferred income Other current liabilities 2002 ThCh$ 429,299,753 611,314,573 13,321,409 503,486,357 42,045,203 14,699,745 224,296,744 4,881,405 74,151,727 16,448,569 85,779,624 56,040,617 27,807,349 9,176,531 60,137,375 As of December 31, 2003 ThCh$ 312,156,562 165,695,013 - 70,945,193 21,433,863 3,158,548 215,444,227 21,069,881 43,916,496 30,748,293 53,704,224 63,702,463 47,840,056 11,975,374 65,360,835 Total current liabilities LONG-TERM LIABILITIES: Due to banks and financial institutions Bonds payable Long-term notes payable Accounts payable Amounts payable to related companies Acrued 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 Other reserves Retained earnings Net income (loss) for the year Deficit of subsidiaries in development stage 2,172,886,981 1,127,151,028 117 1,708,252,057 2,118,824,024 197,801,287 22,832,594 998,174,521 254,486,113 52,841,577 105,015,620 833,894,860 2,299,294,966 145,343,166 26,802,731 84,320 317,416,983 24,748,583 60,336,617 5,458,227,793 3,707,922,226 4,091,108,748 3,349,281,823 758,720,279 33,703,758 47,348,383 406,835,727 (225,985,568) (4,986,481) 2,227,711,340 159,323,362 (25,671,685) 176,016,726 12,467,863 (1,455,716) Total shareholders´ equity 1,015,636,098 2,548,391,890 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 12,737,859,620 10,732,746,967 consolidated financial statements consolidated income statement (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003 and thousands of US dollars) OPERATING INCOME: Sales Cost of Sales GROSS PROFIT As of December 31, 2002 ThCh$ 2003 ThCh$ 2,510,731,952 (1,747,350,860) 2,352,333,380 (1,651,731,835) 763,381,092 700,601,545 Administrative and Selling Expenses (225,410,287) (169,503,861) OPERATING INCOME 537,970,805 531,097,684 NON-OPERATING INCOME: Interest income Equity in income of related companies Other non-operating income Equity in income of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatement, net Exchange difference, net 118 86,137,470 15,146,206 311,225,325 (6,799,786) (511,407,613) (449,331,872) (238,208,379) 5,014,539 (16,271,349) 67,235,139 17,754,503 197,576,789 (237,707) (53,228,237) (420,432,628) (248,024,672) (4,499,391) (6,054,305) NON-OPERATING RESULT (804,495,459) (449,910,509) INCOME (LOSS) BEFORE INCOME TAXES (266,524,654) 81,187,175 Income Taxes Extraordinary Items (66,677,155) (22,599,396) (41,570,717) - INCOME (LOSS) BEFORE MINORITY INTEREST (355,801,205) 39,616,458 Minority Interest 16,445,385 (78,324,793) LOSS BEFORE AMORTIZATION OF NEGATIVE GOODWILL (339,355,820) (38,708,335) Amortization of Negative Goodwil 113,370,252 51,176,198 NET INCOME (LOSS) FOR THE YEAR (225,985,568) 12,467,863 The accompanying notes are an integral part of these consolidated financial statements Enersis / 2003 annual report consolidated statements of changes in shareholders’ equity (Expressed in thousands of historical Chilean pesos, except as stated) Paid-in capital Additional paid-in capital Other reserves Retained earnings Deficit of subsidiaries in development stage Net income (loss) for the year Total ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ As of January 1, 2002 729,328,347 32,398,114 25,517,158 350,149,143 867,381 40,926,246 1,179,186,389 Transfer of prior year income to retained earnings Changes in equity of affiliates Deficit of subsidiaries in the development stage Cumulative translation adjustment Price-level restatement of capital Net loss for the year - - - - - - - - - - - 20,596,914 40,926,246 - - - 21,879,850 971,943 765,515 11,732,261 - - (5,830,512) - 26,021 (40,926,246) - - - - - - (5,830,512) 20,596,914 35,375,590 - - - - - (223,748,087) (223,748,087) As of December 31, 2002 751,208,197 33,370,057 46,879,587 402,807,650 (4,937,110) (223,748,087) 1,005,580,294 As of December 31, 2002 (1) 758,720,279 33,703,758 47,348,383 406,835,727 (4,986,481) (225,985,568) 1,015,636,098 As of January 1, 2003 Capital increase Transfer of prior year loss to retained earnings Changes in equity of affiliates Deficit of subsidiaries in the development stage Cumulative translation adjustment Price-level restatement of capital Net income for the year 751,208,197 33,370,057 46,879,587 402,807,650 (4,937,110) (223,748,087) 1,005,580,294 1,471,844,920 125,881,577 - - - - - - - - - - (11,432,599) - (61,587,469) - - - 1,597,726,497 (228,581,520) 4,833,433 223,748,087 - - - - - (1,302,667) - 119 - - - - (11,432,599) (1,302,667) (61,587,469) 6,939,971 4,658,223 71,728 468,796 1,790,596 (49,372) - - - - - 12,467,863 12,467,863 As of December 31, 2003 2,227,711,340 159,323,362 (25,671,685) 176,016,726 (1,455,716) 12,467,863 2,548,391,890 (1) Restated in thousands of constant Chilean pesos as of December 31, 2003. The accompanying notes are an integral part of these consolidated financial statements consolidated financial statements statements of consolidated cash flows (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003 and thousands of US dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income(loss) for the year GAIN (LOSSES) FROM SALES OF ASSETS: Losses (gain) on sale of property, plant and equipment Gain on sale of investments Losses on sale of other assets 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 Exchange difference, net Other credits to income which do not represent cash flows Other changes to income which do not represent cash flows 120 CHANGES IN ASSETS WHICH AFFECT CASH FLOWS: Decrease (increase) in trade receivables Decrease in inventory Decrease (increase) in other assets CHANGES IN LIABILITIES WHICH AFFECT CASH FLOWS: Decrease in acounts payable associated with operating results Increase (decrease) in interest payable Decrease in income tax payable Increase in other accounts payable associated Net decrease (increase) in value added tax and other similar taxes payable Income (loss) attributable to minority interest As of December 31, 2002 ThCh$ 2003 ThCh$ (225,985,568) 12,467,863 (1,106,875) - - 459,015,845 10,493,180 56,497,694 (15,146,206) 6,799,786 511,407,613 (113,370,252) (5,014,539) 16,271,349 (231,345,363) 149,131,944 56,532,837 11,886,420 (23,278,402) (50,083,576) 55,676,296 (46,296,619) 30,330,183 (1,910,207) (16,445,385) 6,254,224 (89,285,108) 399,487 396,415,628 8,583,470 54,402,387 (17,754,503) 237,707 53,228,237 (51,176,198) 4,499,391 6,054,305 (29,777,139) 153,256,564 (84,407,019) 10,372,331 19,368,706 31,758,837 (11,090,838) (41,018,493) 39,198,600 24,163,738 78,324,793 Net cash flows provided by operating activities 634,060,155 574,476,970 Enersis / 2003 annual report CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares to minority shareholders Proceeds from the insuance of debt Proceeds from bond issuances Other sources of financing Distribution of capital in subsidiary Dividends paid Payment of debt Payment of bonds Payment of loans obtained from related companies Payment of share issuance costs Payment of bond issuance costs Other disbursements for financing As of December 31, 2002 ThCh$ 2003 ThCh$ 1,924,710 988,703,723 132,830,563 26,611,951 (120,479,434) (101,450,778) (1,105,491,293) (29,640,676) (44,833,529) - (11,252,187) (24,813,311) 546,464,851 1,022,598,818 828,121,856 24,038,068 (24,031,631) (80,795,294) (2,128,072,013) (487,071,031) (4,467,535) (10,831,654) (5,681,393) (116,030,617) Net cash used in financing activities (287,890,261) (435,757,575) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Sales of investment in related companies Other loans receiver from related companies Other receipts from investments Additions to property, plant and equipment Long-term investments Investment in financial instruments Other loans granted to related companies Other investments disbursements 121 22,831,460 - - 18,741,707 (321,094,597) (23,699,930) (731,647) - (36,294,538) 160,760,440 121,827,367 24,972,489 49,788,337 (258,785,648) (2,987,209) - (312,412) (6,887,966) Net cash provided by (used in) investing activities (340,247,545) 88,375,398 POSITIVE NET CASH FLOW FOR THE PERIOD 5,922,349 227,094,793 EFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (2,524,628) (119,497,566) NET INCREASE IN CASH AND CASH EQUIVALENTS 3,397,721 107,597,227 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 220,005,877 223,403,598 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 223,403,598 331,000,825 The accompanying notes are an integral part of these consolidated financial statements consolidated financial statements notes to the consolidated financial statements (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003, except as stated) As of and for the years ended December 31, 2002 and 2003 1. description of business Enersis S.A. (the “Company”) is registered in the Securities Register under No.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. The Company’s subsidiaries, Chilectra S.A. and Empresa Nacional de Electricidad S.A. (Endesa S.A.) are registered in the Securities Register under No. 0321 and 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 No.18,046, related to the formation, registration and liquidation of Chilean corporations, among others. Certain amounts in the prior year’s 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 122 amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. In certain cases generally accepted accounting principles require that assets or liabilities be recorded or disclosed at their fair values. The fair value is the amount at which an asset could be bought or sold or the amount at which a liability could be incurred or settled in a current transaction between willing parties, other than in a forced or liquidation sale. Where available, quoted market prices in active markets have been used as the basis for the measurement; however, where quoted market prices in active markets are not available, the Company has estimated such values based on the best information available, including using modeling and other valuation techniques. Reclassifications - For purposes of comparison, the following reclassifications were made in the 2002 financial statements: From Balance sheet reclassifications Charge ThCh$ To Technical appraisal Accounts payable long-term Deferred income taxes long-term 5,600,813 25,294,270 9,516,702 Accumulated depreciation Accrued expenses long-term Deferred income taxes short-term From Statement of operations reclassifications Credit ThCh$ To Credit ThCh$ (5,600,813) (25,294,270) (9,516,702) Charge ThCh$ Other non-operating expenses (5,400,191) Interest expense 5,400,191 Enersis / 2003 annual report 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 operations. 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 Chilectra S.A. Compañía Eléctrica del Río Maipo S.A. (2) Synapsis Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. Endesa Chile S.A. Enersis de Argentina S.A. (3) Enersis Internacional Ltda. Inversiones Distrilima S.A. Empresa Distribuidora Sur S.A. (Edesur) Luz de Bogotá S.A. (1) Cerj Investluz (1) Enersis Energía de Colombia S.A. (3) 2002 Total 98.239845 98.742447 100.000000 100.000000 100.000000 59.980924 100.000000 100.000000 55.682800 65.092614 44.660541 61.952071 48.405907 100.000000 Direct 98.239845 - 99.990000 99.999999 99.931231 59.980924 - 100.000000 15.930000 16.022778 25.714285 26.466946 15.610000 - 2003 Indirect - - 0.010000 0.000001 0.068769 - - - 39.752800 49.069836 18.946256 45.347910 36.388920 - Total 98.239845 - 100.000000 100.000000 100.000000 59.980924 - 100.000000 55.682800 65.092614 44.660541 71.814856 51.998920 - (1) Investluz is Parent Company of Companhia Energética do Céará S.A. Coelce and Luz de Bogotá S.A. is Parent Company of Codensa S.A.. 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. (2) On April 30, 2003, Compañía Eléctrica del Río Maipo S.A. was sold to Compañía General de Electricidad Industrial S.A. and, as a result, that company ceased to be reflected in our consolidation from January 1, 2003 and was treated as an equity - method investee until its sale. On June 23, 2003 Infraestructura 2000 Holding and its consolidated subsidiaries as was sold, and a result, these companies ceased to be reflected in financial statements of Endesa from January 1, 2003 and were treated as equity - method investees until their sale. Enersis de Argentina S.A. and Enersis Energía de Colombia S.A. have been dissolved this year. (3) 123 b. Years covered These financial statements reflect the Company’s financial position as of December 31, 2002 and 2003, and the results of its operations, the changes in its shareholders’ equity and its cash flows for years ended December 31, 2002 and 2003. c. Constant currency restatement The cumulative inflation rate in Chile as measured by the Chilean Consumer Price Index (“CPI”) for the two-year ended December 31, 2003 was approximately 3.94%. 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 25). 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 year 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, 2003 Index 113.36 114.44 Change over Previous November 30, 3.0% 1.0% 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, 2003 Index 112.86 114.07 Change over Previous December 31, 2.8% 1.1% consolidated financial statements 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. Index-linked assets and liabilities 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 that are valued at the lower of cost or market value. The investments are in both short-term highly liquid fixed rate investment shares and mutual fund units valued at cost plus interest and indexation or redemption value as appropriate (Note 4). 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, 2003 Ch$ 16,455.03 16,946.03 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$118,986,788 and ThCh$104,385,199 for the years ended December 31, 2002 and 2003, respectively. In addition, the total sum owed by the companies that have gone into bankruptcy amounting to ThCh$821,469 (ThCh$714,833 in 2002) is included in the bad debt allowance estimation. Comparative financial statements g. Inventories For comparative purposes, the 2002 consolidated financial statements and the amounts disclosed in the related Notes have been restated in terms of Chilean pesos of December 31, 2003, purchasing power. Convenience translation to U.S. dollars 124 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, 2003 of Ch$593.80 to US$1.00. The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. d. Assets and liabilities in foreign currencies Assets and liabilities denominated in foreign currencies are detailed in Note 32. These amounts have been stated at the observed exchange rates reported by the Central Bank of Chile as of each December 31, as follows: Currency Symbol used 2002 Ch$ 2003 Ch$ United States dollar (Observed) British pound sterling Colombian peso New Peruvian sol Brazilian real Japanese yen Euro Pool Unit (IBRD)(1) Unidad de Fomento (UF) Unit of Account (IDB) (1) Argentine peso US$ £ $ Col Soles Rs ¥ € UP UF UC $ Arg 718.61 1,152.91 0.25 204.73 203.57 6.07 752.55 593.80 1,056.21 0.21 171.62 205.52 5.55 744.95 9,089,158.76 8,408,776.27 16,920.00 970.23 200.61 16,744.12 1,093.75 219.09 (1) Units of measurement 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. 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 No.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 Superintendency of Electric and Gas Services (SEG) adjusted for price-level restatement in accordance with D.F.L. No.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 year 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 No.4790, dated December 11, 1985. In accordance with Chilean GAAP, the Company has evaluated the recoverability of its foreign investments as required by Technical Bulletin No. 33 of the Chilean Association of Accountants. It is the Company’s policy, when evidence exists of an other than temporary impairment of fixed assets, such that the Company’s operations are not expected to produce sufficient net cash flows, to recover all fixed asset costs, including depreciation, that the book values of those assets must be reduced to their net realizable values with a charge to non-operating expenses. The Company has not identified impairments in the net book values of its property, plant and equipment. Enersis / 2003 annual report i. Depreciation o. Revenue recognition 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$459,015,845 and ThCh$396,415,628 as of December 31, 2002 and 2003, respectively. Depreciation expense of ThCh$444,302,226 and ThCh$382,896,216 was included in Cost of sales and ThCh$14,713,619 and ThCh$13,519,412 included in Administrative and selling expenses, respectively in the years ended December 31, 2002 and 2003. Revenue consists of revenue for electric power generation and distribution, among which is included energy supplied and unbilled at each year-end, valued at the selling price using the current rates which 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. j. Leased assets The leased assets, whose contracts have financial lease characteristics, are accounted for as an acquisition of property plant and equipment, recognizing the total obligation and the unrecorded interest. Said assets do not legally belong to the Company, for which reason, as long as the purchase 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 completed 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 an accrual basis (Note 11). p. Income tax and deferred income taxes At December 31, 2002 and 2003, the Company recorded current tax expense according to the tax laws and regulations in each country of ThCh$75,840,151 and ThCh$100,753,177, respectively and, additionally, it recorded the effect of temporary differences due to differed taxes of ThCh$59,182,460 (net credit of ThCh$9,162,996 in 2002) with a net credit to the year’s income. The Company records deferred income taxes in accordance with Technical Bulletin No.60 of the Chilean Association of Accountants, and with circular No.1466 issued on January 27, 2000 by the SVS, recognizing, using the liability method, the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates estimated to be in effect at the time of reversal of the temporary differences that gave rise to them. 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. 125 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. Investments in foreign affiliates are recorded in accordance with Technical Bulletins No.42 and 64 of the Chilean Association of Accountants. s. Statements of cash flows In accordance with Chilean GAAP, the Company has evaluated the recoverability of its foreign investments as required by Technical Bulletins No. 33 and No. 42 of the Chilean Association of Accountants. The Company has not identified impairments in the net book values of its investments. m. Intangibles, other than goodwill Intangibles, other than goodwill, correspond mainly to easements, adjustments to carrying value for spum-off assets, and rights for the use of telephone lines and are amortized in accordance with Technical Bulletin No.55 of the Chilean Association of Accountants. 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 No.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. n. Severance indemnity t. Financial derivative contracts 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. As of December 31, 2003 the Company and its subsidiaries have forward contracts, currency swaps, and interest rate swaps and collars with several financial institutions, defined as cover, which are recorded according to Technical Bulletin No.57 of the Chilean Association of Accountants. Forward foreign exchange contracts gains and losses are recorded at estimated fair value with certain gains and losses deferred as assets or liabilities until consolidated financial statements settlement if the instrument qualifies as a hedge and included in earnings as “Other non-operating income and expense.” 3. change in accounting principles There were no changes in accounting principles during the year ended December 31, 2002 and 2003 that would affect the comparison with the prior year financial statements. u. Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular No.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. As of December 31, 2002 and 2003 the Company evaluated the recoverability of its goodwill and negative goodwill value arising from investments abroad and in virtue of Technical Bulletin No.56 of the Chilean Association of Accountants, under IAS 36 “Impairment of Assets Value”, an impairment of goodwill and negative goodwill was recorded (See Note 13). At December 31 2002, and as a result of the recoverability analysis specified in the previous paragraph, the Company amortized all of the goodwill and negative goodwill recorded by investments in Argentina and Brazil, since rebated flows from the Companys in those countries did not cover the goodwill and negative goodwill recorded. Effects in 2002 were a net charge to income of ThCh$238,798,904, net of minorities and included in the income statement under item amortization of negative goodwill. 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. 126 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 Investments in other companies are presented at acquisition cost adjusted for price-level restatement and they do not have market value. y. Research and development costs Costs incurred by the Company in research and development are which general in nature (water-level studies, hydroelectric research, seismic-activity surveys) are expensed as incurred. Costs incurred in performing studies related to specific construction projects are capitalized. During the year end December 31, 2002 and 2003, there were no research and development costs incurred. z. Cost of share issue Costs incurred to date associated with issuing and placing shares are recorded according to the provisions of Circular No. 1370 of 1998 of the Superintendency of Securities and Insurance. The amounts under these items are deducted from the premium account. Breakdown of the costs is shown in Note 28. Enersis / 2003 annual report 4. time deposits Time deposits as of each year end are as follows (annual rate and scheduled maturity in table below represent such at December 31, 2003). As of December 31, Financial Institution Banco Bilbao Vizcaya 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 Holandes Banco Interbank Banco Itau Banco Nationale de Paris Banco Pactual Banco Provincia de Buenos Aires Banco Real Banco Rio de la Plata Banco Safra Banco Santander Banco Santander Do Brasil Banco Santos Banco Tequendama Banco Unión Banco Votorantim Banco Wiese Sudameris Bancolombia Bank Boston Bank of America Bradesco BTM Citibank N.Y. Citiliquit Colcorp S.A. Corficol S.A. Corfinsura Corfivalle Corporacion las Villas Encargo Fiduciario Banco Santander Fiduciaria Banco Colpatria Fiduciaria Bancolombia Fiduciaria de Santander Fiducolombia Fiduoccidente Fiduvalle Granahorrar HSBC - Bamerindus Interbolsa S.A Merril lynch Porvenir Pruential Securiti Serfinco Suvalor Unibanco Otros Total Annual Rate % 0.97% 9.35% 1.48% - 10.50% - - 1.37% 1.37% 2.50% 3.75% 0.70% 1.44% 1.44% 1.39% - - 1.59% 16.03% 1.51% 1.37% 1.39% 8.50% 9.75% 1.39% - 1.00% 0.80% 0.56% 1.38% 0.60% 0.53% 0.95% - 9.66% 1.41% 1.70% 9.95% 6.51% 7.71% 7.37% 6.72% 8.14% - 7.08% 8.90% 1.39% 9.68% 0.60% 3.22% 0.20% 8.05% 9.10% - - Scheduled Maturity 05-01-04 02-01-04 06-01-04 - 02-02-04 - - 02-01-04 02-01-04 20-01-04 28-01-04 02-01-04 02-01-04 02-01-04 15-01-04 - - 28-01-04 02-01-04 02-01-04 02-01-04 15-01-04 02-01-04 01-03-04 15-01-04 - 05-01-04 02-01-04 05-01-04 15-01-04 02-01-04 05-01-04 02-01-04 - 02-01-04 02-01-04 02-01-04 01-03-04 02-01-04 02-01-04 02-01-04 04-01-04 02-01-04 - 02-01-04 02-01-04 15-01-04 02-01-04 05-01-04 02-01-04 30-01-04 02-01-04 02-01-04 - 02-01-04 2002 ThCh$ 4,584,493 14,956,447 3,402,753 4,152,837 613,024 150,979 348,392 1,070,955 - 609,612 436,058 2,891,618 215,200 700,763 2,952,372 657,112 - 5,176,989 - 2,366,916 1,182,363 - - - 3,260,288 435,478 - 95,035 5,373,623 3,801,902 - 55,796,821 - 1,034,481 3,724,255 - 3,761,704 - 2,387,475 - 228 163,304 - 9,825 768,985 - 5,504,531 - 8,293,650 - - - 4,055,608 2,145,470 1,617 2003 ThCh$ 68,469,616 8,454,519 2,104,459 - 202,040 - - 3,469,083 3,019,595 278,814 201,973 1,301,911 6,238 404,796 2,698,006 - 379,939 2,480,797 2,659,815 5,514,171 246 861,954 751,813 10,311,678 981,676 - 1,246,980 440,462 16,444,649 855,934 651,994 43,612,454 3,077,936 - 6,925,006 1,968,859 4,513,569 919,059 501,514 1,648 5,315,138 1,520 1,095,663 - 1,722,823 806,257 18,052,231 10,279,888 5,993,536 14,906,595 1,029,285 88,380 1,244,538 - 5,549 147,083,163 256,254,606 consolidated financial statements 127 5. accounts, notes and other receivables Current accounts, notes and other receivables and their related allowances for doubtful accounts as of each December 31, are as follows: Account Under 90 days 91 days to 1 year Sub total Current 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ Long term 2002 ThCh$ 2003 ThCh$ As of December 31, Account receivable 492,269,288 496,640,838 77,681,457 62,052,667 558,693,505 569,950,745 467,170,365 Allowance for doubtful accounts (38,380,312) (33,028,933) (68,142,312) (58,494,207) (91,523,140) (106,522,624) Notes receivables 4,700,533 7,981,338 1,457,111 1,152,322 9,133,660 6,157,644 8,362,627 Allowance for doubtful accounts (120,165) (116,344) (854,817) (654,689) (771,033) (974,982) - - - - Other receivables 53,062,242 52,477,241 19,347,036 50,286,032 102,763,273 72,409,278 94,194,266 129,592,779 131,457,063 Allowance for doubtful accounts (3,033,127) (2,779,433) (5,972,294) (5,789,574) (8,569,007) (9,005,421) (2,483,761) (3,522,019) Total 532,014,640 569,727,258 127,109,018 127,935,044 Current and long-term accounts receivable per country as of each December 31, are as follows: 128 Country Chile Perú Argentina Colombia Brazil Panamá Total As of December 31, 2003 2002 ThCh$ 146,118,266 58,769,018 40,866,386 100,786,120 311,586,391 997,477 % 22.17% 8.92% 6.20% 15.29% 47.27% 0.15% ThCh$ 169,757,602 45,292,103 46,986,117 110,553,416 324,777,530 295,534 % 24.33% 6.49% 6.73% 15.85% 46.55% 0.04% 659,123,658 100.00% 697,662,302 100.00% Enersis / 2003 annual report 6. transactions with related companies The balances of accounts receivable and payable are as follows at December 31, 2002 and 2003: a. Notes and accounts receivable: Company Aguas Santiago Poniente S.A. Atacama Finance Co. CGTF Fortaleza Cía. Interconexión Energética S.A. Com. de Energía del Mercosur S.A. Consorcio Energetico Punta Cana-Macao Distrilec Inversora 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 Gas Atacama S.A. Gas Atacama Generación Ltda. Gasoducto Atacama Chile Gasoducto Tal Tal Ltda. Ingendesa do Brasil Consorcio Ara-Ingendesa Ltda. Inversiones Electricas Quillota S.A. Sacme Smartcom S.A. Soc. de Inv. Chispa Uno S.A. Transmisora Eléctrica de Quillota Ltda. As of December 31, Short-term Long-term 2002 ThCh$ 260,374 183,867,364 3,900 4,142,233 4,467,110 948 7,330 24,459 173,464 282,337 325,343 1,648,410 222,220 166,926 - 576,149 - 146,320 - - 1,010 102,108 625,597 1,956 307,265 2003 ThCh$ 578,492 1,904,970 144,600 2,669,983 5,058,905 939 5,996 27,313 34,433 32,431 - 1,279,417 93,762 37,937 2,615,689 29,846 123,521 - - 452,110 2,000 88,515 1,571,083 1,973 306,210 2002 ThCh$ - - - 37 - - - - - - - - - - - - - - 16,181 - - - - - 890,931 2003 ThCh$ - 128,184,900 - 155,439 - - - - - - - 169,245 - - - - - - - - - - - - 594,249 129 Total 197,352,823 17,060,125 907,149 129,103,833 b. Notes and accounts payable: Company Aguas Santiago Poniente S.A. Cía. Interconexión Energética S.A. Cía. de Transmisión del Mercosur S.A. CGTF Fortaleza Com. de Energía 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 Servicios Gasoducto Tal Tal Ltda. Ingendesa do Brasil Sacme Smartcom S.A. Transmisora Eléctrica de Quillota Ltda. As of December 31, Short-term Long-term 2002 ThCh$ 637 - 108,115 - 767,772 236,175 11,580,352 1,238,934 866,000 1,120,838 125,876 162,165 - 102,737 55,741 83,227 2003 ThCh$ 6 20,940,972 1,008,377 3,194,163 569,799 194,463 133,160 2,851,852 385,358 1,200,147 95,887 - 7,126 112,315 31,848 22,820 2002 ThCh$ - - - - - - 997,244,777 929,744 - - - - - - - - 2003 ThCh$ - - - - - - - 84,320 - - - - - - - - Total 16,448,569 30,748,293 998,174,521 84,320 consolidated financial statements c. Effects in income (expense) in each year end December 31, 2002 and 2003 are as follows: Company Nature of Transaction As of December 31, 2002 Amount ThCh$ Income (Expense) ThCh$ As of December 31, 2003 Amount ThCh$ Income (Expense) ThCh$ Aguas Santiago Poniente S.A. Atacama Finance Co. CGTF Fortaleza Cía. Interconexión Energética S.A. Consorcio ARA-Ingendesa Com. de Energía del Mercosur S.A. Com. Transmisión del Mercosur S.A. Empresa Eléctrica de Bogotá S.A. Elesur S.A. Empresa Eléctrica Piura S.A. 130 Electrogas S.A. Endesa Internacional S.A. Endesa Servicios Empresa Propietaria de la Red Etevensa Gasoducto Atacama Generación Ltda. Gasoducto Tal Tal Ltda. Ingendesa do Brasil Sacme Smartcom S.A. Soc. de Inv. Chispa Uno S.A. Transmisora Eléctrica de Quillota Ltda. Interest Services Interest Monetary correction Exchange difference Services Purchase of energy Sale of energy Purchase of energy Interest Services Exchange difference Services Sale of energy Purchase of energy Interest Services Purchase of energy Exchange difference Interest Monetary correction Services Sale of energy Purchase of energy Services Services Services Interest Services Services Sale of energy Services Services Services Services Services Services Services Interest Monetary correction Services 22,128 15,159 5,540,261 1,737,790 28,991,652 1,144,349 3,127,438 21,407,084 50,556,652 66,539 54,867 - 2,077,094 19,987,902 2,125,804 - 18,353 2,058,111 2,148,962 9,267,916 15,675,723 35,744 488,777 4,794,788 96,395 2,615,631 127,134 188,999 122,745 149,404 2,214,085 128,047 78,694 - 24,940 308,575 3,759,498 8,518 107,246 24,733 128,294 22,128 15,159 5,540,261 1,737,790 (28,991,652) 1,144,349 (3,127,438) 21,407,084 (50,556,652) 66,539 54,867 - 2,077,094 19,987,902 (2,125,804) - 18,353 (2,058,111) (2,148,962) (9,267,916) (15,675,723) 35,744 488,777 (4,794,788) 96,395 (2,615,631) 127,134 (188,999) (122,745) 149,404 2,214,085 128,047 78,694 - (24,940) (308,575) 3,759,498 8,518 107,246 24,733 128,294 (62,589,841) 71,465 32,381 6,726,455 5,038,575 11,218,729 478,557 21,852 27,260,902 - - 275,635 3,558 - 19,344,388 1,977,795 63,144 74,594 1,411,673 - 43,842,919 29,373,511 16,078 1,471,956 9,715,844 177,673 3,008,489 184,543 1,036,799 - 350,464 5,815,456 155,153 591,737 40,899 - 368,040 3,441,365 8,516 145,491 44,434 5,117 71,465 32,381 6,726,455 5,038,575 11,218,729 478,557 (21,852) 27,260,902 - - 275,635 (3,558) - 19,344,388 (1,977,795) (63,144) 74,594 (1,411,673) - (43,842,919) (29,373,511) 16,078 1,471,956 (9,715,844) 177,673 (3,008,489) 184,543 (1,036,799) - 350,464 5,815,456 155,153 591,737 (40,899) - (368,040) 3,441,365 8,516 145,491 44,434 5,117 (7,934,859) 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 year and settlement in line with cash flows. Detail of the long-term payables / receivables is as follows: Company Elesur S.A. Transmisora Eléctrica de Quillota Ltda. Atacama Finance Co. Type Due Date Capital Currency Interest Rate Cta. por pagar Cta. por pagar Account receivables Account receivables 5/13/04 5/13/04 2006 2005 35,827,779.56 22,873,999.43 70,242.29 215,872,179 U.F. U.F. U.F. US$ 1.31% 1.68% 9.00% 3.42% Enersis / 2003 annual report 7. inventories Inventories include the following items and are presented net of an allowance for obsolescence amounting to ThCh$4,385,619 and ThCh$2,683,638 as of December 31, 2002 and 2003, respectively: Real state under development Materials in transit Operation and maintenance material Fuel Others Total 8. deferred income taxes As of December 31, 2002 ThCh$ 24,042,270 1,115,246 27,986,470 6,760,428 1,082,066 2003 ThCh$ 16,157,076 135,300 22,051,283 5,964,453 82 60,986,480 44,308,194 Income taxes (recoverable) payable as of each year-end are as a. follows: c. The balance of taxed retained earnings (tax losses) and the related tax credits are as follows: As of December 31, Year 2002 ThCh$ 2003 ThCh$ Income tax provision - current Recoverable tax credits 27,807,349 (54,980,336) 47,840,056 (61,286,338) 2002 2003 Amount of loss ThCh$ Credit ThCh$ 23,935,936 4,569,803 199,692,930 - 131 Total (27,172,987) (13,446,282) b. Enersis (individual legal entity) incurred taxable losses of ThCh$112,077,596 and ThCh$201,568,234 for the year ended December 31, 2002 and 2003, respectively. d. The net effect of recording deferred tax expense resulted in a net credit to income of ThCh$9,162,996 and ThCh$59,182,460 during the year ended December 31, 2002 and 2003, respectively. consolidated financial statements e. In accordance with BT No.60 and 69 of the Chilean Association of Accountants, and Circular No.1,466 of the SVS, the Company and its subsidiaries have recorded consolidated deferred income taxes as of December 31, 2002 and 2003 as follows: Concepts Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ Short-term ThCh$ Long-term ThCh$ As of December 31, 2002 As of December 31, 2003 Asset Liability Asset Liability Allowance for doubtful accounts Deferred income Vacation accrual Intangibles Leasing assets Fixed assets depreciation Severance indemnities Other Contingencies Bond discount Cost of studies Finance cost Imputed interest on construction Deferred charges Actuarial deficit (Brazil) Withholdings Obsolescence Materials used Tax losses Provision real state project Sie2000A project Provision for employee benefits Difference between the financial and tax value Río Maipo Derivative contracts Exchange difference subsidiaries Operating fees Energy in measurers Regulated assets Capitalized expenses Intangibles Chocon Complementary account - net Valuation allowance 27,035,992 1,494,877 769,811 72,015 - 146 - 3,594,092 7,938,072 - - - - - - 574,558 302,156 - 29,982,094 - - 699,478 1,409,835 5,359,656 - - - 6,886,751 - 1,606,843 44,976,491 - - - - - 11,775,837 - 76,847 - 97,925,200 2,873,023 - 2,527,267 90,863 - - 12,393 - - - 938,639 - 109,977 - - - 1,755,492 - 5,721 - - - - - 527 - - - 1,502 - 374,043,309 948,245 3,901,701 - 1,745,623 7,980,878 10,638,763 4,550,251 2,736,926 - 1,219 - 3,716,538 - - 178,733 - 25,532,561 930,762 1,223,410 - - - - 4,253,906 6,660,238 - - - - - - 1,253,029 - - 15,458,979 - - 451,937 8,170,065 1,842,789 - - 2,324,725 7,733,690 5,300 2,103,847 38,423,059 - - 118,204 - - 6,834,095 869,566 - - 100,984,920 2,682,607 - 1,191,673 - - - - - 64,631 - 4,420,170 - 156,053 - - - 778,509 - 5,549 - - - - - 522 - - - - - 429,741,603 822,383 7,986,537 - 1,734,298 8,052,280 13,893,414 4,912,067 3,143,392 2,324,725 195,075 - 1,097,152 - - - 521 - - 910,639 4,981,513 - - - - (60,887) - - 305,207 2,731,918 - - - - - (21,245,613) (2,619,849) - 965,095 - - 2,730,718 2,226,949 - - (1,590) - - - - - - 13,224,702 1,414,276 2,725,964 (248,470,634) - - 354,326 1,301,759 - - - - - (3,683,753) - - 236,516 3,905,276 - - - - - (42,590,056) (2,294,384) 1,489,974 - - - - 3,866,280 - 37 (3,219) - - - - - - - 1,498,430 2,926,732 (292,945,140) - Total 78,294,556 154,589,413 8,834,784 179,337,996 53,737,154 132,541,892 10,778,506 185,383,469 Income tax benefit (expense) for the year ended December 31, 2002 f. and 2003 is as follows: 132 Item Income tax provision Adjustment for tax expense - prior year Deferred taxes Benefits for tax losses Amortization of complementary accounts Valuation allowance Other charges or credits Total As of December 31, 2002 ThCh$ (75,327,507) (512,644) 24,716,698 5,093,617 (15,656,230) (127,841) - (4,863,248) 2003 ThCh$ (100,751,537) (1,640) 50,210,225 27,116,024 (18,105,168) (38,621) - - (66,677,155) (41,570,717) Enersis / 2003 annual report 9. other current assets Other current assets are as follows: Forwards contracts and swap (1) Guaranties and indemnities Deferred expenses post-retirement benefits Deposits for commitments and guarantees Bond discount Account receivables from the Chilean Ministry of Public Works Recoverable - taxes Fair value derivatives contracts Others Reverse repurchase agreements (*) Total (1) See detail in Note 29. As of December 31, 2002 ThCh$ 73,528,595 1,195,240 5,766,204 917,756 26,359,504 - 8,483,476 2,887,193 11,719,458 2,484,398 - 2003 ThCh$ 10,923,643 2,371,350 6,614,476 865,286 12,659,720 722,598 - 2,354,873 1,177,039 755,709 35,484,088 133,341,824 73,928,782 (*) The detail of reverse repurchase agreements is as follows: Date As of December 31, 2002 Code Start End Financial institution Currency Document Interest rate Current amount % ThCh$ Nominal ThCh$ Fair value ThCh$ CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV CRV 12/23/03 12/23/03 12/23/03 12/23/03 12/23/03 12/23/03 12/23/03 12/23/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 12/30/03 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/5/04 1/2/04 1/2/04 1/2/04 1/2/04 1/2/04 1/2/04 BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BBVA C. Bolsa BHIF S.A. BCI C. Bolsa S.A. BCI C. Bolsa S.A. BCI C. Bolsa S.A. BCI C. Bolsa S.A. Bancoestado S.A. C.B. Bancoestado S.A. C.B. Bancoestado S.A. C.B. Bancoestado S.A. C.B. Bancoestado S.A. C.B. Bancoestado S.A. C.B. 133 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Bono CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. Bono CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. D.P.R. D.P.R. D.P.R. P.D.B.C. CERO D.P.F. L.H. L.H. L.H. L.H. L.H. D.P.R. D.P.R. D.P.R. D.P.R. D.P.F. 0.27% 0.27% 0.27% 0.27% 0.27% 0.27% 0.27% 0.27% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26% 0.20% 0.20% 0.25% 0.25% 0.25% 0.25% 0.27% 0.27% 0.27% 0.27% 0.27% 0.27% 41,682 3,747 411,177 201,207 4,625,621 13,849,961 600,893 280,112 55,117 3,450 1,289,499 919,240 911,798 347,418 1,380,795 807,441 207,268 106,637 1,399,906 306,264 2,226 270,192 402,243 4,435,471 305,586 18,931 20,681 396,015 176,185 1,092,832 597,439 17,054 41,652 3,744 410,881 201,062 4,622,293 13,839,996 600,461 279,911 55,112 3,450 1,289,387 919,161 911,719 347,388 1,380,675 807,371 207,250 106,627 1,399,784 306,238 2,226 270,174 402,210 4,435,101 305,560 18,929 20,679 395,979 176,170 1,092,733 597,386 17,053 41,682 3,747 411,177 201,207 4,625,621 13,849,961 600,893 280,112 55,117 3,450 1,289,499 919,240 911,798 347,418 1,380,795 807,441 207,268 106,637 1,399,906 306,264 2,226 270,192 402,243 4,435,471 305,586 18,931 20,681 396,015 176,185 1,092,832 597,439 17,054 Total 35,484,088 35,468,362 35,484,088 consolidated financial statements 10. property, plant and equipment The composition of property, plant and equipment is as follows: Land Buildings and infrastructure Distribution and transmission lines and public lighting Less: third party contributions Sub-total Machinery and equipment Work in progress Construction materials Leased assets Furniture and fixtures, tools, and computing equipment Vehicles Equipment in transit Other assets 134 Sub-total Technical appraisal Buildings and infrastructure Machinery and equipment Other assets Total technical appraisal As of December 31, 2002 ThCh$ 2003 ThCh$ 131,203,835 115,453,784 6,672,031,327 5,112,002,563 (45,507,327) 5,720,327,311 4,372,434,555 (38,825,669) 11,738,526,563 10,053,936,197 1,998,142,088 1,762,236,656 368,152,002 57,023,213 722,292 80,047,377 13,228,900 7,537,621 13,498,068 159,006,562 51,432,701 615,332 76,291,759 13,710,401 6,199,631 40,833,308 540,209,473 348,089,694 611,329,810 142,061,512 261,353 502,988,090 116,269,308 213,832 753,652,675 619,471,230 Total property plant and equipment 15,161,734,634 12,899,187,561 Accumulated depreciation at beginning of year Buildings and infrastructure Machinery and equipment Other assets (3,844,983,403) (635,172,469) (77,638,424) (3,659,649,792) (567,927,448) (44,393,681) Accumulated depreciation at beginning of year (4,557,794,296) (4,271,970,921) Accumulated depreciation at beginning of year technical appraisal Buildings and infrastructure Machinery and equipment Other assets (111,126,219) (55,171,029) (374,480) (87,418,330) (46,705,243) (316,929) Total accumulated depreciation at beginning of year technical appraisal (166,671,728) (134,440,502) Depreciation of the year (459,015,845) (396,415,628) Total accumulated depreciation at end of year (5,183,481,869) (4,802,827,051) Total property, plant and equipment, net 9,978,252,765 8,096,360,510 Enersis / 2003 annual report At December 31, 2002 and 2003 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. 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 company’s operations do not 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 exceed its realization value, these values must be written down to recoverable amounts, charging non operating income. The property, plant and equipment recoverability analysis, as explained in Note 2h, was carried out considering that when there is evidence that 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 are as follows: Related Companies Number of shares Percentage owned 2003 2002 Shareholders’ equity of investee Net income of investees 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ Equity in income 2003 2002 ThCh$ ThCh$ Investment book value 2003 2002 ThCh$ ThCh$ Cía. de Interconexión Energética S.A. (2) Gas Atacama Generación S.A. Gasoducto Atacama Argentina S.A. Gasoducto Atacama Chile S.A. Inversiones Eléctricas Quillota S.A. Inversiones Electrogas S.A. Cía. de Energía del Mercosur S.A. (3) Transmisora Eléctrica de Quillota Ltda. Atacama Finance Co. Endesa Market Place (4) Sacme Electrogas S.A. Consorcio ARA- Ingendesa Consorcio Ingendesa - Minmetal Limited (1) Gas Atacama S.A. Inversiones Gas Atacama Holding Ltda. Central Geradora Termelectrica Fortaleza S.A.(*) Ingendesa do Brasil Limitada Distrilec Inversora S.A. Aguas Santiago Poniente S.A. (*) Total 128,270,106 - - - 608,676 425 6,305,400 - 3,150,000 210 12,000 85 - - 1,147 - 20,246,908 - 4,416,141 1,031,949 45.00% 50.00% 50.00% 50.00% 50.00% 42.50% 45.00% 50.00% 50.00% 15.00% 50.00% 0.02% 50.00% 50.00% - - 48.82% 100.00% - 55.00% 45.00% 0.05% 0.05% 0.05% 50.00% 42.50% 45.00% 50.00% - - 50.00% 0.02% 50.00% 50.00% 0.0011% 50.00% 48.82% - - 55.00% 119,509,231 68,448,335 64,868,716 56,417,660 17,298,638 15,869,870 7,690,175 5,082,987 5,230,813 3,231,944 79,470 11,302,024 106,824 3,713 - - 44,134,443 58,016 - 2,293,024 121,877,449 59,258,642 54,547,284 51,450,616 21,995,615 18,797,232 7,708,759 5,392,454 - - 86,122 17,267,942 124,272 3,326 164,950,845 164,948,946 33,459,443 - 8,683 2,192,591 16,228,851 24,759,084 3,258,586 (9,682,534) 4,820,005 1,475,845 6,489,614 5,293,292 2,646,460 6,580,436 5,856,912 1,517,084 1,355,690 (3,421,870) 310,329 255,588 - (269,198) - (1,893,847) 31,355 14,280 5,965,918 1,613,238 100,775 114,992 38,210 - 385,814 - (475,414) - - - - (81,816) 8,683 - - - 7,302,991 (4,841,267) 2,410,003 3,244,807 1,323,229 644,761 (1,539,842) 127,794 (134,600) (284,077) 15,678 342 57,496 19,105 - - - - - - 11,141,588 1,629 738 2,647 3,290,216 2,489,188 610,060 155,165 - - 7,140 1,268 50,388 - 4 (237,707) - - 4,472 - 53,779,154 54,844,852 29,629 34,224,168 27,274 32,434,358 25,725 28,208,829 10,997,808 8,649,319 7,988,824 6,744,695 3,468,942 3,460,579 2,696,227 2,541,493 - 2,615,406 484,793 - 43,061 39,735 3,669 2,402 62,136 53,412 1,663 1,856 1,891 - 82,474,473 - 16,334,900 21,546,421 - 58,016 4,472 - 1,205,925 1,261,163 135 8,346,420 17,516,796 196,105,799 180,211,471 (1) Related companies unconsolidated with subsidiary Ingendesa Ltda. (2) Related companies unconsolidated with subsidiary Compañía Eléctrica Cono Sur S.A. (3) Related companies unconsolidated with subsidiary Endesa Argentina S.A. (4) Company with negative equity (5) These subsidiaries were in the 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, 2003, amounted to ThCh$17,754,503 (ThCh$15,146,206), ThCh$237,707 (ThCh$6,799,786) in 2002. Company Country of origin Edesur S.A. Edelnor S.A. Companhia de Eletricidade do Río de Janeiro Luz de Bogotá S.A. (Codensa S.A.) Investluz S.A. (Coelce) Central Hidroeléctrica Betania S.A. Cachoeira Dourada S.A. Edegel S.A. Cía. Interconexión Energética S.A. Hidroeléctrica El Chocón S.A. Comercializadora de Energia del Mercosur S.A. Central Costanera S.A. Total Argentina Perú Brasil Colombia Brasil Colombia Brasil Perú Brasil Argentina Argentina Argentina c. In accordance with Technical Bulletin No.64 of the Chilean Association of Accountants for the nine month years ended December 31, 2002 and 2003, the Company has recorded foreign exchange gains and losses on liabilities related to net investments in foreign countries that are denominated in the same currency as the functional currency of those foreign investments. Such gains and losses are included in the cumulative translation adjustment account in shareholders’ equity, and in this way, act as a hedge of the exchange risk affecting the investments. As of December 31, 2003 the corresponding amounts are as follows: Investment ThCh$ 376,658,893 18,790,742 323,818,995 224,263,713 74,616,732 388,075,105 358,414,232 180,701,515 54,844,852 189,748,674 3,468,942 92,380,475 2,285,782,870 Reporting currency US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Liability ThCh$ 232,116,929 19,323,450 348,180,545 253,090,879 95,856,203 275,373,220 405,082,294 165,456,684 48,193,748 81,628,031 2,271,562 57,636,346 1,984,209,891 consolidated financial statements d. The investments made by Enersis S.A. and it affiliates ended as of December 31, 2002 and 2003, amounted to ThCh$23,699,930 and ThCh$2,987,209, respectively, which are detailed as follows: Company Central Termeléctrica Fortaleza S.A. Central Eléctrica Cachoeira Dourada S.A. Pangue S.A. Inversiones Distrilima S.A. Central Costanera S.A. Aguas Santiago Poniente S.A. Luz de Río Ltda. Compañía Electrica del Río Maipo S.A. Otros As of December 31, 2002 ThCh$ 2003 ThCh$ 15,635,180 59,520 5,048,883 1,202,192 - 1,649,613 62,084 1,145 41,313 - 24,761 - - 2,962,448 - - - - Total 23,699,930 2,987,209 • Capital increase in Cerj • Sale of Infraestructura 2000 S.A. On November 15, 2002, at an Extraordinary Meeting Nº16, the Board of Directors of Enersis approved a capital increase in its subsidiary Cerj in Brazil. Such increase will be done in a direct and indirect way through its subsidiaries Chilectra and Luz de Río in order to maintain its participation percentage in Cerj. On June 23, 2003, Endesa S.A. sold 330,939,522 shares of the subsidiary Infraestructura 2000 S.A. in the amount of M$39,097,079 and 3,741 shares of Sociedad Concesionaria Autopista del Sol S.A., in the amount of M$40,147, which amounts represent 100% of its participation in these related Companies (Note 24) On December 10, 2002, the Extraordinary General Shareholders’ Meeting of the Company Cerj agreed to an increase in the authorized capital for an approximate total amount of MUS$105.000. • Sale of Shares On December 29 2003, Compañía Eléctrica Cono Sur S.A. sold GasAtacama S.A. 3,150,000 shares in Atacama Finance for US$ 4,400,000. (Note 24) 136 On January 6, 2003, the companies Endesa Internacional, Endesa Internacional Energía, Chilectra S.A. have written over 100% of the rights of share subscription of the company Cerj and part of the rights of Luz de Río S.A. to Enersis. A capital increase was made on January 10, 2003 through the issuance and the subscription of 770.833.333.333 ordinary shares, at a value of R$0,48 by lot of thousand shares totaling the MUS$100.000 approved by the Meeting and increasing the authorized capital of the Company to MUS$259.085. With this operation, the percentage of direct and indirect participation held by Enersis S.A. and branches increased from 61.9521% to 71.8148%. • Sale of Río Maipo The purchasing contract between Enersis and Compañía General de Electricidad – Distribución was signed on April 30, 2003 for the entire share participation held by Enersis (356.078.645 shares) in the Company Río Maipo. The attribution to the Company CGE Distribución was made by the Board of Directors of Enersis on March 28, 2003, with a bid of US$170 million for the shares held by Enersis and was ratified later at an Extraordinary Shareholders Enersis’ Meeting dated March 31, 2003. The signature of the purchasing contract marked the end of the process of attribution of the Company Río Maipo, which is part of the strategic plan of Enersis approved on October 4, 2002. The effects for the sale of the shares are detailed in the Note 24. On December 29 2003, Compañía Eléctrica Cono Sur S.A. sold GasAtacama S.A. 5,000 shares in Energex Co. for US$ 5,000. (Note 24) • Incorporation of Companies On October 1 and November 17 2003 the Company Inversiones Gas Atacama Holding Limitada, of which Inversiones Endesa Norte S.A. owns 50%, was incorporated by public deed; to that end, it provided ThCh$700,000 in cash and ownership and control of 99.90% of its ownership rights in subsidiaries Gasoducto Atacama Chile Limitada, Gasoducto Atacama Argentina Limitada and Gas Atacama Generación Limitada, which are equivalent to 49.95% of all of its rights in the aforementioned subsidiaries. On December 1 2003 the firm names of subsidiaries Gasoducto Atacama Chile Limitada, Gasoducto Atacama Argentina Limitada and Gas Atacama Generación Limitada were amended by public deeds and changed to Gasoducto Atacama Chile S.A., Gasoducto Atacama Argentina S.A. and Gas Atacama Generación S.A., respectively. • Merger of Inmobiliaria Manso de Velasco Limitada and Sociedad Agrícola el Gobernador Limitada. Partners of these Companys agreed by public deed dated December 31 2003 to a merger by absorption of Inmobiliaria Manso de Velasco into Constructora el Gobernador Ltda., which, for all legal intents and purposes, became the successor, changing its name as of that date to Inmobiliaria Manso de Velasco Limitada. As a result of this merger, Inmobiliaria Manso de Velasco Ltda. was dissolved, and its partners received rights in the continuing Company. • Dissolution of Investment Vehicles. During 2003, Companys Enersis Energía de Colombia S.A. and Enersis de Argentina S.A. were dissolved Enersis / 2003 annual report 12. investments in other companies Investments in other companies at December 31, 2002 and 2003 are as follows: As of December 31, Company Electrificadora de la Costa Electrificadora del Caribe Autopista del Río Maipo S.A. Banco Destak CDEC-SIC Ltda. CDEC-SING Ltda. Club de la Banca y Comercio Club Empresarial Coger Cooperativa Eléctrica de Chillán Emgesa S.A. Edegas Distasa S.A. Empresa Eléctrica de Aysen S.A Empresa Eléctrica de Bogotá S.A. Financiera Eléctrica Nacional S.A. Inmobiliaria España S.A. Inverandes S.A. Menescal Produciones Artisticas Prod. Cinematográfica Saelpa Supra CCVM Ltda. Termocartagena Teleceara Telebras Total 13. goodwill Number of Shares Percentage owned % 3,599,191 85,568,116 25 - - - 2 1 - - 1 1 1 2,516,231 12,818,264 4,098 1 1,011,899 - - - - 22 - - 0.06% 0.23% - - 24.35% 7.69% 1.00% 1.00% - - - 1.00% - - 11.00% 0.10% - - - - - - - - - 2002 ThCh$ - - 4,875 43,376 225,345 - 2,726 6,212 2,055 13,037 3 3,456 6 1,997,810 158,367,971 357,091 98 3,455 5,896 - 732 26,790 6 522 - 2003 ThCh$ 26,475 1,343,089 - - 169,004 100,655 1,945 6,290 - 13,037 - - - 1,997,810 129,566,567 108,998 98 3,455 51,444 24,663 1,932 - - 1,375 43,460 161,061,462 133,460,297 137 As of December 31, 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, 2002 and 2003, as follows: 2002 Company Central Cachoeira Dourada S.A. Central Costanera S.A. Chilectra S.A. Cía. de Eletricidade do Río de Janeiro Cía. Eléctrica del Río Maipo S.A. Codensa S.A. Coelce S.A. Distrilec Inversora S.A. Edegel S.A. Edesur S.A. Emgesa S.A. Empresa Eléctrica de Colina S.A. Empresa Eléctrica Pangue S.A. Empresa Nacional de Electricidad S.A. Gasoducto Atacama Chile Ltda. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Inversiones Distrilima S.A. Investluz S.A. Lajas Inversora S.A. Luz de Bogotá S.A. Amortization ThCh$ 70,260,190 24,259,256 6,306,827 110,468,063 580,158 1,805,878 216,129,350 11,758,649 41,430 9,578,673 1,631,589 187,040 70,389 43,387,863 4,820 10,170,013 1,393,519 1,515 1,106,194 1,816,112 450,085 Net Balance ThCh$ - - 107,339,283 - 10,329,890 26,787,488 - - 614,544 - 24,210,381 2,571,792 3,308,270 674,318,980 77,926 - - 18,180 - - 6,411,900 2003 Amortization ThCh$ - - 6,277,891 - - 1,477,454 - - 33,895 - 1,335,456 187,038 168,933 43,387,862 4,820 - - 1,239 - - 353,649 Net Balance ThCh$ - - 101,061,394 - - 18,960,902 - - 468,885 - 18,471,931 2,384,754 3,139,337 630,931,117 73,106 - - 13,635 - - 4,892,157 Total 511,407,613 855,988,634 53,228,237 780,397,218 consolidated financial statements 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, 2002 and 2003 as follows: Company Central Cachoeira Dourada S.A. Central Costanera S.A. Central Hidroeléctrica Betania S.A. Hidroeléctrica El Chocón S.A. Cía. de Eletricidade do Río de Janeiro (*) Coelce S.A. Edegel S.A. Edelnor S.A. Empresa Eléctrica de Bogotá S.A. Inversiones Distrilima S.A. Synapsis Soluciones y Servicios IT Ltda. 2002 2003 As of December 31, Amortization ThCh$ 37,238,402 - 35,234,878 3,649,603 16,033,466 9,268,830 10,397,103 1,256,602 257,351 18,550 15,467 Net Balance ThCh$ - - 25,067,747 - - - 63,714,136 2,721,743 3,860,510 617,459 143,085 Amortization ThCh$ - 424,069 6,448,438 - 34,517,091 - 8,506,245 1,028,071 210,799 26,017 15,468 Net Balance ThCh$ - 16,538,687 14,322,281 - - - 43,620,591 1,198,685 2,947,623 479,150 127,615 Total 113,370,252 96,124,680 51,176,198 79,234,632 (*) According to the provisions of Circular 368 of the Superintendency of Securities and Insurance, the Company has amortized higher quarterly installments due to the revaluation of Cerj, caused by the capital increase in January 2003. 14. other assets Other assets as of each year end are as follows: 138 Bond discount Bond issuance cost Forwards contracts and swap Deferred expenses Deferred commissions on foreign currency loans Post-retirement benefits Security deposits for judicial obligations Recoverable - taxes Reimbursable contributions Regulatory assets Fair - value derivative contracts Others As of December 31, 2002 ThCh$ 21,025,338 11,628,452 9,457,463 25,699,828 17,552,614 19,470,838 23,887,123 14,721,537 1,460,199 36,406,966 52,419,114 7,413,680 2003 ThCh$ 19,583,113 6,495,002 4,864,823 30,638,221 28,485,979 2,079,192 28,818,185 12,449,928 1,283,129 23,944,832 16,263,309 5,705,312 Total 241,143,152 180,611,025 The debt refunding plan was completed in March 2003, which meant incurring in expenditures required to obtain the loans, which are amortized in the same term as the debt. Disbursements for this item amount to ThCh$56,100,807, classified in the statements of cash flow under item disbursements for financing, within the flow for financing activities. Continuing with the company’s refunding plan, Enersis S.A. and its subsidiary Endesa Chile prepaid US$2,045 million of the last loan obtained in May 2003. These payments were made with funds from sale of assets, capital increase, issuance and placement of bonds and obtaining new loans. As a result of these pre-payments, speedy amortizations of deferred expenses for ThCh$39,095,216 were made and charged to financial expenses. Enersis / 2003 annual report 15. due to banks and financial institutions a. Short-term debt due to banks and financial institutions: Financial Institution US$ 2002 ThCh$ 2003 ThCh$ Euros 2002 ThCh$ 2003 ThCh$ Other foreing currency 2003 2002 ThCh$ ThCh$ Ch$ 2002 ThCh$ 2003 ThCh$ As of December 31, 2003 2002 ThCh$ ThCh$ Foreign currency ABN Amro Bank AV Villas Banco Alfa Banco Banrisul Banco Bayerische Landes Banco BBVA Banco BBVA Bhif Banco Beal Banco Continental - Soles Banco Crédito Banco Crédito Inversiones Banco Crédito Nacional Banco Davivienda Banco de Bogota Banco de Chile Banco de Colombia Banco de Occidente Banco do Brasil Banco Europeo de Investimentos Banco Ganadero Banco HBSC Banco Hermes Banco Itau Banco Lloyds Banco Nacional del Lavoro Banco Nationale de Paris Banco Popular Banco Río Banco Safra Banco Santander Banco Santander Central Hispano Banco Santiago Banco Sudameris Banco Tequendama Banco Union Bank Boston Bank of Tokio - Mitsubishi Barings Bndes Brandesco Caixa General de Depósitos Citibank Colpatria Conavi Corfisura Deutsche Bank Electrobras - Brasil Granahorrar Interbank Banco San Paolo Unibanco 6,622,851 - - - 8,831,904 15,543,762 15,016,903 14,218,335 9,057 - - - - - 1,409,375 - - - 996,155 - 15,116,121 - 17,509,425 11,111,737 - - - 5,221,052 - 10,599,649 89,380 953,597 - - - 21,789,155 12,329,952 5,085,087 - 4,110,296 - 17,250,924 - - - - - - 24 40,715,709 4,013,202 5,955,112 - - - 684,183 - - 460,216 - 3 - 2,436,019 - - 393,370 - - 5,249,210 - - 9,929,412 3,290,246 14,872,587 7,907,429 2,515,387 - - 3,662,785 2,018,355 - 22,245,103 2,057,182 - - - 5,662,876 16,274,281 3,644,804 - 9,146,376 - 7,914,720 - - - - - - - - - - - - - - - - - - - - - - - 54,356 - - - - - - - - - - - - - - - - - - - - - - - - - 4,533,855 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,500,552 - - - - - - - - - - - - 2,943,726 2,054,159 - 7,248,037 - - 24,667,303 20,739,383 - - 2,320,628 12,731,982 - - 5,074,494 - - 893,455 - - - 971,971 - 1,746,177 - 4,685,030 - 11,349,245 6,823,709 - - - - 7,693,681 - - 3,835,526 - - 10,728,750 - - - 731,210 - 5,109,129 - - - 13,711,031 6,510,896 - 391,505 - 13,359,061 - - 21,145,202 12,725,091 - - 3,254,460 10,842,960 - 14,004,996 1,714,007 - - 8,752,484 - - - 4,397,147 - 1,451,120 4,369,870 3,023,178 - - 10,359,095 - 1,316,225 1,755,593 1,096,602 17,526,889 - - 14,078 - - 16,926,318 4,391,074 2,840,258 2,010,410 - 5,466 - 7,220 - 2,055,240 - - - - - - 20,591,559 - - - 5,734,680 - - - 7,145,575 - - - - - - - - - - - - - - 117 - 30,348,364 - - - - - - - - - - - - - - - - - - - - - - - - - 7,849 - - - 175 - - - 6 - - - - - - - - - - - - - - 2,370,847 - 1 - - - - - - - - - - - - - - - - - - - 6,622,851 - 2,943,726 2,054,159 8,831,904 22,791,799 35,608,462 14,218,335 24,676,360 20,739,383 5,734,680 - 2,320,628 12,731,982 8,609,306 - 5,074,494 - 996,155 893,455 15,116,121 - 17,509,425 12,083,708 - 1,746,177 - 9,906,082 - 21,949,011 6,913,089 31,301,961 - - - 29,482,836 12,329,952 5,085,087 3,835,526 4,110,296 4,533,855 27,979,674 - - - 731,210 - 5,109,129 24 40,715,709 4,013,202 19,666,143 6,510,896 - 391,505 684,183 13,359,061 7,849 460,216 21,145,202 12,725,094 175 2,436,019 3,254,460 10,842,960 393,376 14,004,996 1,714,007 5,249,210 - 8,752,484 9,929,412 3,290,246 14,872,587 12,304,576 2,515,387 1,451,120 4,369,870 6,685,963 2,018,355 2,370,847 32,604,198 2,057,183 1,316,225 1,755,593 1,096,602 23,189,765 16,274,281 3,644,804 14,078 9,146,376 3,500,552 24,841,038 4,391,074 2,840,258 2,010,410 - 5,466 - 7,220 - 2,055,240 Total 228,543,652 126,319,656 4,588,211 3,500,552 132,347,595 179,957,476 63,820,295 2,378,878 429,299,753 312,156,562 Total principal 174,509,774 120,003,673 4,358,800 3,325,524 118,837,220 170,959,602 63,655,109 2,378,693 361,360,903 296,667,492 Weighted average annual interest rate 8.14% 8.20% 4.38% 5.00% 14.84% 15.93% 2.48% 1.01% 10.35% 10.40% 139 Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2003 2002 % % 99.24% 0.76% 85.13% 14.87% 100.00% 100.00% consolidated financial statements 140 b. Current portion of long-term debt due to banks and financial institutions: Financial Institution ABN Amro Bank Bancafe Banca Intesa S.P.A. London Branch Banco Bayerische Landes Banco BBVA Bhif Banco BBVA Banco Beal Banco Colpatria Banco Corfinsura Banco Davivienda Banco de Sabadell Banco do Brasil Banco do Estado de Ceará Banco do Nordeste do Brasil Banco Español de Crédito Banco Estado Banco Europeo de Investimentos Banco HBSC Banco Hermes Banco Lloyds Banco Medio Crédito Banco Nacionale del Lavoro Banco Popular Español Banco Real Banco San Paolo Banco Santander - Santiago Banco Santander Central Hispano Bancolombia Banesto Bank Boston Bank of América Bank of Tokio - Mitsubishi Banque Nationale París Birf Bndes Caja de Ahorros y Monte de Piedad de Madrid Citibank N.A. Credit Lyonnais N.Y. Conavi Corporación Financiera del Valle Dresner B. Luxemburg Deutsche Bank A.G. Eximbank Export Develop. Corp. Granahorrar ING Bank N.V. Israel Discount Bank N.Y. J.P.Morgan Chase Bank Kreditanstal Fur Weideraubau Landesbank Rheiniland-Pfalz Midland Bank Mizuho Corporate Bank Ltd. Nord LB Norddeutshe Landes Royal Bank of Canada Santander Investment Bank Ltd. Skandinaviska Enskildabnken Societe Generale Westlb A.G. N.Y. Branch Unibanco Total Total principal US$ 2002 ThCh$ 2003 ThCh$ Euros 2002 ThCh$ 2003 ThCh$ Foreign currency Yen 2002 ThCh$ 2003 ThCh$ Other foreign currency 2002 2003 ThCh$ ThCh$ Ch$ 2003 ThCh$ 2002 ThCh$ As of December 31 2003 ThCh$ 2002 ThCh$ 2,663,133 - - 5,678,769 1,461,868 - - - - - - 154,365 - - - 940,631 - 10,933,205 5,445,443 7,291,639 - 172,877 - - - 776,322 218,106,678 108,190 4,647,067 606,567 98,757,351 47,458,466 11,980,120 - - - 24,538,356 - - 56,385 83,762,158 - - 2,532,048 - - - 1,015,169 429,022 - 5,725,137 - - - 6,412,718 2,398,873 1,863,978 - - 1,761,445 - 10,498 337,528 - 213,887 9,900,548 - - - 2,087 321,635 - - 5,233 3,867 896,489 19,750 - - - - 7,352 - 137,340 81,025 197,438 - 5,093,156 - 46,438,382 5,887,459 11,763,016 - - 118,463 10,253,572 10,498 - - 16,448 55,936 - 1,827,243 - 10,498 1,682 315,209 346,974 9,345 - 4,205 - 10,496 3,057,654 1,985,176 1,140,973 10,498 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 128,565 - - - - - - - - - - - - - - - 4,591,217 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 123,767 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,138,324 - 3,399,301 - - - - 6,546,225 - - 14,784,096 - 14,731,635 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,180,928 - 424,533 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 73,710 - - - - - 49,140 196,560 159,212 - 1,001,256 - 45,113 2,195 - - - - - 1,820,338 - - - - - - 297,351 - - - 412,346 - 1,117,055 8,245,660 - - - 122,850 - - - - - 73,710 - - - - - - - - - - - - - 55,982 - - - - - - - - - - - - 891,815 2,007 - 42,973 - - - - - 2,433 - 475,035 - - - - - - - - 7,143,098 - 2,039,576 - - - - - - - 464,068 - - - - 1,207,721 - - - - - - - - - - 53,325 - - - - - - - - - - - - - - - 36,040,302 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,756,624 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,761,445 73,710 10,498 337,528 - 213,887 9,900,548 49,140 196,560 159,212 2,087 1,322,891 - 45,113 7,428 36,044,169 896,489 19,750 - - 1,820,338 - 7,352 - 137,340 81,025 197,438 297,351 5,093,156 13,180,928 46,438,382 6,848,105 11,763,016 1,117,055 8,245,660 118,463 10,253,572 10,498 122,850 - 16,448 55,936 - 1,827,243 73,710 10,498 1,682 315,209 346,974 9,345 - 4,205 - 10,496 3,057,654 1,985,176 1,140,973 10,498 55,982 2,663,133 - - 5,678,769 1,461,868 - - - - - - 154,365 891,815 2,007 - 2,740,228 - 10,933,205 5,445,443 14,429,963 - 3,574,611 - 475,035 - 776,322 224,652,903 108,190 4,647,067 15,390,663 98,757,351 62,318,666 19,123,218 - 2,039,576 - 24,538,356 - - 56,385 83,762,158 - 464,068 2,532,048 - - - 6,814,107 429,022 - 5,725,137 - - - 6,412,718 2,398,873 1,863,978 - 53,325 545,916,535 102,253,005 4,719,782 123,767 46,599,581 13,605,461 13,672,478 12,322,051 36,040,302 1,756,624 165,695,013 611,314,573 518,620,707 98,286,131 4,693,974 121,738 46,284,777 13,594,206 12,673,182 8,973,553 35,813,075 1,569,638 160,488,332 580,142,649 Weighted average annual interest rate 3.24% 4.96% 3.79% 3.00% 2.08% 3.46% 16.79% 8.53% 4.56% 8.73% 5.64% 3.30% Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2003 2002 % % 78.25% 21.75% 99.71% 0.29% 100.00% 100.00% On May 15, 2003, Enersis S.A. and its subsidiary Empresa Nacional de Electricidad S.A. and a body of 32 banks, subscribed syndicated loans to refinance bank debts in an amount of US$2.330 million. Due to this refinancing, the obligations which expired in 2003 and 2004, were postponed until 2008, with capital amortizations from 2005. The covenants which regulate these loans do not trigger prepayment of the obligations if the Company or its subsidiary Endesa Chile’s risk rating falls below investment grade. On July 28 2003, Enersis S.A. prepaid US$ 582 million with resources from the sale of Río Maipo and the capital increase. On November 24 2003, Enersis S.A. prepaid all the subscribed loan for May; this prepayment was made mostly with funds from a new loan of US$ 500 million subscribed with six banks on November 14 2003 and from the issuance and placement of bonds worth US$ 350 million on the American market and a further US$ 155 million from other cash sources. This final payment released all the securities pledged to the first thirty two banks. Similarly, Endesa Chile has prepaid US$ 458 million with resources from the sale of assets and issuance and placement of bonds. Enersis / 2003 annual report 16. long-term portion of debt due to banks and financial institutions Financial Institution Currency As of December 31, 2003 After 1 year but within 2 years ThCh$ After 2 years but within 3 years ThCh$ After 3 years but within 5 years ThCh$ After 5 years but within 10 years ThCh$ After 10 years Years ThCh$ Total Long-term portion 2003 ThCh$ Annual interest rate average Total long-term portion - 2002 ThCh$ ABN Amro Bank Bancafe Banca Intesa S.P.A. Banco Bayerische Landes Banco BBVA Banco Colpatria Banco Estado Banco Español de Crédito Banco Europeo de Investimentos Banco Davivienda Banco de Sabadell Banco do Brasil Banco Medio Crédito Banco Nacionale de Paris Banco Popular Español Bancolombia Banco Santander Central Hispano Banesto Bank Tokio - Mitsubishi Banco do Estado de Ceará Banco do Nordeste do Brasil BIRF BNDES Caja de Ahorros y Monte de Piedad de Madrid Citibank N.Y. Conavi Corfinsura Credit Lyonnais N.Y. Deutsche Bank A.G. Dresdner Bank Export Develop. Corp. Granahorrar HBSC Bank ING Bank N.V. Israel Discount Bank of N.Y. J.P.Morgan Chase Bank Kreditanstal Fur Weideraubau Landesbank Rheinland Pflaz Giroz Lloyd’s Bank Mizuho Corporate Bank Ltd. Royal Bank of Canadá San Paolo IMI S.P.A. Santander Investment Skandinaviska Enskildabnken Societe Generale Westlb A.G. N.Y. Branch Unibanco Total Percentage of debt in foreign currency: Percentage of debt in local currency: Total US$ $ Colom US$ US$ US$ $ Colom $ Reaj. US$ US$ US$ $ Colom US$ Rs US$ $ Arg US$ US$ $ Colom US$ US$ Yen US$ US$ Libra Yen Euros Rs Rs U.P. Rs US$ US$ $ Colom $ Colom US$ US$ US$ US$ US$ $ Colom US$ US$ US$ US$ US$ US$ US$ Yen US$ US$ US$ US$ US$ US$ US$ Rs - - 947,190 1,210,897 1,484,025 - 1,395,900 - 472,190 213,065 - 188,314 - - 1,797,897 12,791,168 663,314 - - 7,310,509 - 2,418,557 14,954,039 402,154 422,438 121,738 - - - 1,783,205 - 11,762,358 - - - 947,190 1,484,025 1,484,025 1,691,051 - 1,781,954 947,190 151,775 32,659,000 324,830 843,196 6,900,518 - 379,438 947,192 1,703,256 - 1,962,604 - 947,190 - 8,313,200 - 1,894,380 10,038,124 2,968,050 - 1,694,640 - 944,380 - - 376,628 1,779,121 441,448 1,797,897 13,675,789 1,326,628 - - 14,621,019 - 2,418,557 1,894,380 - - - 172,996 81,691 - 76,815,884 - 4,862,430 - - - 1,894,380 2,968,050 2,968,050 1,691,051 - 3,563,908 1,894,380 303,551 - 324,830 1,686,392 - - 758,876 1,894,381 3,406,512 - 1,962,509 - 1,894,380 27,839 - 3,206,021 2,841,570 1,686,392 78,677,075 2,137,347 1,273,686 - 1,416,570 9,896,667 6,412,312 564,942 1,779,121 384,610 1,797,897 25,867,553 1,989,942 8,549,390 352,696 96,156,528 - 4,837,114 47,376,570 - - - - - - 2,989,260 44,535,000 7,293,645 5,343,369 8,549,390 - 2,841,570 19,297,075 4,452,075 3,382,102 3,206,021 5,345,862 2,841,570 455,326 14,845,000 649,660 2,529,588 - - 1,138,314 2,841,573 49,644,768 - 981,302 - 2,841,570 - - - - - - - - - - 19,793,333 - - 4,447,804 2,406,728 6,292,887 9,054,045 - - - - - 7,255,675 - - - - - - - 3,994,579 - - - - - - - - 5,437,396 - - - - - 162,415 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 518,910 - - 1,644,520 - - - - - - - - - - - - - - - - - - - - - - 828,802 - - - - - - - - - - - - - - - - - 8,313,200 3,206,021 5,683,140 12,935,413 83,129,150 2,137,347 4,364,226 - 2,833,140 29,903,065 6,412,312 1,129,884 8,524,956 3,232,786 11,686,578 63,033,075 3,979,884 8,549,390 352,696 118,088,056 - 16,929,903 64,224,989 402,154 422,438 121,738 172,996 81,691 - 85,582,928 44,535,000 23,918,433 5,343,369 8,549,390 - 5,683,140 23,749,150 8,904,150 13,030,402 3,206,021 10,691,724 5,683,140 910,652 47,504,000 1,461,735 5,059,176 6,900,518 - 2,276,628 5,683,146 54,754,536 - 4,906,415 - 5,683,140 27,839 2.75% 12.55% 4.16% 5.63% 3.50% 12.55% 9.00% - 4.16% 1.37% 12.55% 4.16% 17.74% 14.21% 1.75% 4.73% 4.16% 12.55% 29.08% 3.69% - 4.29% 3.52% 4.63% 0.89% 3.00% 13.00% 15.79% - 22.64% 3.42% 3.86% 12.55% 12.55% 4.16% 3.70% 4.16% 2.23% 12.55% 4.16% 4.16% 4.16% 8.53% 4.85% 4.16% 5.50% - 4.16% 4.16% 3.56% - 0.65% - 4.16% 14.21% 84,854,044 - - - 471,767,465 - 57,203,605 4,650 - 36,289,805 - - 8,348,419 4,592,606 12,090,311 76,093,655 - - 489,590 290,318,440 7,048,945 28,650,213 13,928,001 886,725 933,276 248,420 147,003 119,893 1,201,425 90,316,657 - 397,114,151 - - 32,935,663 - - - 17,817,287 - - - - 58,063,688 2,183,691 - 1,146,528 1,088,694 - - - 3,701,560 7,196,504 1,391,829 - 79,314 115,493,392 173,356,331 483,208,043 58,844,862 2,992,232 833,894,860 1,708,252,057 141 As of December 31, 2002 % 17.84% 82.16% 2003 % 10.52% 89.48% 100.00% 100.00% consolidated financial statements 17. other current liabilities Other current liabilities are as follows: Advances and guarantee on construction Taxes payables Contingencies - third party claims Customer advances Provision Azopardo Accrued employees benefits - other Forward contracts and swaps Fair value - derivative contracts Emergency energy provision (Brazil) Other current liabilities As of December 31, 2002 ThCh$ 608,017 2,507,700 15,364,751 3,326,514 2,360,050 2,250,384 5,787,192 11,364,036 10,815,538 5,753,193 2003 ThCh$ 123,101 1,033,592 19,372,593 2,450,478 3,052,829 1,685,050 25,868,021 7,466,784 1,625,660 2,682,727 Total 60,137,375 65,360,835 18. promissory notes 142 Financial Instruments Currency Face value Maturity date Interest rate As of December 31, 2002 ThCh$ 2003 ThCh$ 3,120,503 2,145,548 123,350 % 5.00% 5.25% 10.00% - 3,500,603 5.00% 289,162 - 4,142,243 13,321,409 - - - - - - - Commercial papers Commercial papers Promissory note - AFR OPP-027/2002 Promissory note - Banco Santander OPP-058/2002 Total Soles Soles U.F. Soles Soles Soles 3,030,678 2,081,801 - 1,000 286,299 1,000 5/1/03 8/1/03 12/31/03 6/10/03 1/3/03 9/5/03 Enersis / 2003 annual report 19. bonds payable a. Details of the current portion of bonds payable is as follows: Instrument Series Face value outstanding Currency Interest rate % Maturity date As of December 31, 2002 ThCh$ 2003 ThCh$ Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds II - Enersis Bono N° 269 Bono N° 269 Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa 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 Edegel Bonos Edegel Bonos Edegel Bonos Edegel Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Bonos Emgesa Eurobono Endesa Chile Internacional Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Bonos Autopista del Sol S.A Total Uno I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. Uno Dos Tres Uno B-1 B-2 Uno Dos Tres Uno Uno E-1 y E-2 C2; D1 Y D2 F G H 144A 144A Uno Uno Dos Tres Cuatro Cuatro A Cinco A Cinco B Uno A Tres A Tres B A-1 B-3 B-5 B-7 B-10 B-10 C-10 C-10 B-10 2° emision A-5 B-1 Unica Unica A-1 A-2 B-1 B-2 4,891,900 80,000,000 18,570,000 30,000,000 20,000,000 100,000,000 40,000,000 300,000,000 350,000,000 150,000,000 350,000,000 445,863 2,500,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 1,251,257 1,500,000 4,000,000 4,000,000 400,000,000 200,000,000 170,000,000 30,000,000 30,000,000 30,000,000 20,000,000 50,000,000 30,000,000 35,000,000 100,000,000 50,000,000 50,000,000 15,000,000 31,525,018 12,750,000 19,500,000 229,825,000 60,000,000 7,701,962 19,777,918 50,000,000 172,858 85,000,000 400,000,000 150,000,000 3,446,160 861,540 964,372 243,578 Soles Soles Soles Soles Soles Soles Soles US$ US$ US$ US$ U.F. U.F. US$ US$ US$ US$ US$ U.F. U.F. U.F. U.F. U.F. US$ US$ US$ US$ US$ US$ US$ Soles Soles Soles Soles Soles Soles $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. Euro US$ U.F. U.F. U.F. U.F. 9.61% VAC + 7,5 % VAC + 6,2 % 6.50% 6.34% VAC + 6,9% 4.47% 6.90% 7.45% 6.63% 7.38% 5.50% 5.75% 7.88% 7.33% 8.13% 7.75% 8.50% 6.20% 6.80% 6.20% 4.80% 6.20% 8.35% 8.63% 7.30% 8.75% 8.41% 8.75% 8.46% 4.75% 11.60% 6.00% 6.00% 4.13% 4.88% 9.89% 14.79% 9.97% 10.29% 10.60% 10.57% 9.88% 10.25% 15.18% 8.35% 13.95% 3.34% 7.20% 5.80% 5.80% 5.80% 5.80% 01/02/2011 01/07/2006 26/04/2007 01/01/2004 24/01/2004 10/10/2006 11/09/2007 21/11/2006 21/11/2016 21/11/2026 01/12/2014 15/06/2009 15/06/2022 01/02/2027 01/02/2037 01/02/2097 15/07/2008 01/04/2009 01/08/2006 01/11/2010 01/08/2022 15/10/2010 15/10/2008 01/08/2013 01/08/2015 01/05/2003 13/06/2007 14/02/2007 03/06/2006 26/11/2005 12/12/2006 22/08/2003 22/02/2004 06/06/2005 05/05/2006 30/10/2006 26/07/2006 08/02/2003 09/10/2004 09/10/2006 09/10/2009 10/11/2009 09/10/2009 08/10/2009 26/06/2006 08/10/2004 26/07/2006 24/07/2003 01/04/2006 15/01/2018 15/01/2018 15/01/2018 15/01/2018 6,005 601,008 44,225 180,123 49,499 292,190 - 1,210,264 1,080,485 578,822 - 7,677,871 106,535 4,906,923 4,873,420 1,019,215 10,312,351 6,169,267 2,581,888 2,473,129 645,472 - - - - 124,886,525 150,293 697,526 98,468 136,680 - 7,524,632 132,188 - - - 1,308,919 10,264,100 75,658 119,344 1,449,421 - 81,486 44,130 223,180 70,746 - 306,778,275 1,959,649 1,648,440 412,110 491,702 124,193 5,024 522,743 37,402 5,292,702 3,470,489 247,110 93,654 1,024,305 926,706 2,802 1,532,747 152,759 77,343 4,005,132 3,987,121 769,694 8,436,908 5,047,300 2,583,176 2,600,930 645,794 668,867 861,052 8,649,357 4,467,626 - 122,974 570,865 80,569 111,835 22,356 - 5,250,320 68,568 113,923 70,800 58,942 - 2,788,242 99,864 1,213,243 196,835 73,690 39,903 1,164,287 - 1,185,974 - 1,603,260 - - - - 503,486,357 70,945,193 143 consolidated financial statements b. Details of the long-term portion of bonds payable is as follows at each year ended: Instrument Series Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds - Enersis Yankee Bonds II - Enersis Bono N° 269 Bono N° 269 Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Endesa Bonos Edegel Bonos Edegel Bonos Edegel 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 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 Bonos Endesa Internacional Total 144 Uno I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. Uno Dos Tres Uno B-1 B-2 Uno Dos Tres Uno Unica E-1 y E-2 C2; D1 Y D2 F G H 144A 144A Uno Dos Tres Cuatro Cuatro A Uno A Cinco B Tres A Tres B A-1 B-1 B-5 B-7 B-10 B-10 C-10 C-10 B-10 2° emision A-1 A-2 B-1 B-2 Unica Face value outstanding 4,891,900 80,000,000 100,000,000 30,000,000 20,000,000 18,570,000 40,000,000 300,000,000 350,000,000 150,000,000 350,000,000 2,928,543 2,500,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 1,251,257 1,500,000 4,000,000 4,000,000 400,000,000 200,000,000 30,000,000 30,000,000 30,000,000 20,000,000 50,000,000 100,000,000 35,000,000 50,000,000 50,000,000 15,000,000 85,000,000 12,750,000 19,500,000 229,825,000 60,000,000 7,701,962 19,777,918 50,000,000 3,446,160 861,540 964,372 243,578 150,000,000 Currency Interest rate % Maturity date As of December 31, 2002 ThCh$ 2003 ThCh$ Soles Soles Soles Soles Soles Soles Soles US$ US$ US$ US$ U.F. U.F. US$ US$ US$ US$ US$ U.F. U.F. U.F. U.F. U.F. US$ US$ US$ US$ US$ US$ Soles Soles Soles Soles Soles $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. U.F. U.F. U.F. U.F. US$ 9.61% VAC + 7,5 % VAC + 6,9 % 6.50% 6.34% VAC + 6,2% 4.47% 6.90% 7.45% 6.63% 7.38% 5.50% 5.75% 7.88% 7.33% 8.13% 7.75% 8.50% 6.20% 6.80% 6.20% 4.80% 6.20% 8.35% 8.63% 8.75% 8.41% 8.75% 8.46% 4.75% 6.00% 6.00% 4.13% 4.88% 9.89% 13.95% 9.97% 10.29% 10.60% 10.57% 9.88% 10.25% 15.18% 5.80% 5.80% 5.80% 5.80% 7.20% 01/02/2011 01/07/2006 10/10/2006 01/01/2004 24/01/2004 26/04/2007 11/09/2007 21/11/2006 21/11/2016 21/11/2026 01/12/2014 15/06/2009 15/06/2022 01/02/2027 01/02/2037 01/02/2097 15/07/2008 01/04/2009 01/08/2006 01/11/2010 01/08/2022 15/10/2010 15/10/2008 01/08/2013 01/08/2015 13/06/2007 14/02/2007 03/06/2006 26/11/2005 12/12/2006 06/06/2005 22/04/2004 05/05/2006 30/10/2006 26/07/2006 26/06/2006 09/10/2004 09/10/2006 09/10/2009 10/11/2009 09/10/2009 08/10/2009 26/07/2006 15/01/2018 15/01/2018 15/01/2018 15/01/2018 01/04/2006 1,010,394 16,647,508 20,884,730 6,196,324 4,130,883 3,898,572 - 217,738,830 181,255,964 108,869,415 - 49,526,236 42,278,903 149,427,626 159,675,142 29,333,775 290,318,440 290,318,440 101,469,367 20,029,882 25,367,342 - - - - 21,773,883 21,773,883 21,773,883 14,515,922 - - 6,196,324 - - 3,800,258 21,534,796 3,230,219 4,940,336 58,226,188 - - 5,331,860 15,201,032 58,279,946 14,569,986 16,309,031 4,119,290 108,869,414 838,813 14,079,415 17,662,273 - - 3,297,092 6,858,793 178,140,000 148,292,049 509,480 207,830,000 679,076 32,740,200 122,252,138 130,636,000 23,999,021 237,520,000 237,520,000 101,520,000 17,662,331 25,380,000 67,680,000 67,680,000 237,520,000 118,760,000 17,814,000 17,814,000 17,814,000 11,876,000 8,571,016 17,142,033 - 8,571,016 8,571,016 3,206,021 18,167,453 0 4,167,827 49,121,888 12,824,085 3,086,739 1,734,454 10,686,737 - - - - 89,070,000 2,118,824,024 2,299,294,966 c. Bonds payable consist of the following: (1) Enersis S.A. Series B1-B2 On September 11, 2001, Enersis S.A. registered two series of bearer bonds dated 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 No.of bonds per series Face value in UF 1,000 300 1,000 150 1,000 10,000 1,000 10,000 Enersis / 2003 annual report 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. In November 2003, these series were voluntarily exchanged for shares in connection with the capital increase. The holders converted ThCh$63,656,586 into 893,612,466 first issue shares. Underwritten amounts were determined by experts. Capitalized amounts were ThCh$46,968,180 for the B1 series and ThCh$7,028,064 for the B2 series (Note 23b). (2) Enersis S.A. (Yankee Bonds) Repurchase of Yankee Bonds Enersis Internacional, a 100% subsidiary of Enersis during November 2001 made a tender offer to repurchase all or a portion of the Series 2 Yankee Bonds. The offer expired November 21, 2001 and the Enersis Internacional repurchased a total of US$100,266,000 in bonds with accrued interest, at a price of US$95,536,000. (3) Bonos Internacionales (Yankee Bonds II) On November 24 2003, the Company, through its Cayman Islands Agency, issued and placed Yankee Bonds on the American market for US$350 million. This placement was made in a single tranche, whose features are as follows: On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: Series Total amount in US$ Years to maturity Stated annual interest rate 1 350.000.000 10 3,4% Series Total amount in US$ Years to maturity Stated annual interest rate Interest is paid six-monthly and amortization of capital is a single 1 2 3 300,000,000 350,000,000 150,000,000 10 20 30 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 has a pre-redemption option in year seven, which was exercised by nearly all holders in November 2003 for US$149,142,000. installment at the end of the term. (4) Bonds of Chilectra S.A. On October 13, 2003, Chilectra S.A. registered, in the Superintendency of Securities and Insurance, 2 lines of bonds corresponding to Nº 347 and 348 for a maximum line amount of UF4,200,000 and UF4,000,000 respectively; the placement has a maturity of 10 years from August 22, 2003. To date, the placement of the related bonds has not been made. 145 consolidated financial statements (5) 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 : 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% annual : Accrued and paid within 90 days : Early redemption option At December 31, 2003, this issue is totally cancelled. Third issue Date of Issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment : August 7, 1998 : 15,000 : US$1,000 each : 3 years : 7.7% annual : Accrued and paid within 90 days At December 31, 2003, this issue is totally cancelled. 146 First program of Corporate Bonds First issue Date of Issue Number of bonds subscribed 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 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 : October 29, 2001 : 146,300 : 30,000 soles each : 5 years : 7.5% annual : Semi - annual : October 19, 2001 : 20,000 : 5,000 new soles each : 5 years : 6.9% annual + VAC : Semi – annual : 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 Enersis / 2003 annual report Fifth issue Date of issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment Sixth issue Date of issue Number of bonds subscribed Face value Redemption term Interest rate Interest payment (6) Endesa Chile S.A. : March 1, 2003 : 3,714 : 5,000 (new soles each) : 4 years : 6.2 % annual + VAC : Semi - annual : September 12, 2003 : 8,000 : 5,000 (new soles each) : 4 years : 4.46875 % annual : Semi - annual The Company made five public bond issues on the domestic market on the following dates: • On September 12 1988, the Company registered a first bond issue of U.F. 5,000,000 under No. 15 in the Securities Register of the Superintendency of Securities and Insurance; this was placed completely by year-end on December 31 1988; this issue was totally paid in at September 1 2000. • On August 24 1989, it registered the second bond issue worth U.F. 6,000,000 under No. 111; this issue was placed completely at December 31 1990. This issued was totally paid in at October 1 2001. • On December 7 1990, it registered the third issue of bonds worth U.F. 4,000,000 under No. 131. U.F. 2,030,000 of this issue had been placed at December 31 1997. The balance of U.F. 1,970,000 has been cancelled, because its placement deadline has expired. • On August 9 2001, it registered the fourth bond issue worth U.F: 7,500,000 under No. 264; this was totally placed at December 31 2001. • On November 26 2002, it registered the fifth bond issue worth U.F. 8,000,000 under Nos. 317 and 318 and then amended it on October 2 2003; 147 this issue was totally placed at December 31 2003. I Risk rating of the issued bonds is a follows as of the date of December 31, 2003: - Comisión Clasificadora de Riesgo - Fitch IBCA Chile Clasificadora de Riesgo Ltda - Clasificadora de Riesgo Humphreys Ltda. Category BBB+ A+ BBB+ ISSUANCE TERMS Third Issuance Issuer Securities issued Issuance Value Indexation Amortization year Capital amortization Early Redemption dates. Nominal interest rate readjusted : 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 year and 10 years to pay off at principal). Series D-1 and D-2: 20 years (5-year grace year and 15 years to pay off at principal). : 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. Paydown installments are incremental : As elected by the issuer, starting May 1, 1996 and only on the interest payment and amortization : 6.8% annually upon expiration, compound and actual rate per semester on outstanding principal, by the value of the Unidad de Fomento. The applicable semi-annual interest rate will be equal to 3.34409%. consolidated financial statements Interest Payments Guarantee Placement year Fourth Issuance Issuer Securities issued Issuance Value (1) Readjustment Amortization year : Interest will be paid semi-annually each May 1 and November 1, starting May 1, 1991. Accrued interest as of December 31, 2003 and 2002 amounts to ThCh$223,384 and ThCh$248,075, and is shown under current liabilities. : There is no specific collateral ration, however, a general guarantee collateralizes 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 principal adjusted for : Accrued interest as of December 31, 2003 amounts to ThCh$3,228,970 (ThCh$3,227,360 in 2002) : There is no specific collateralization; 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 Early redemption Nominal interest rate the value of the Unidad de fomento. The semi-annual interest rate will be 3.0534%. Interest payments which is shown under current liabilities. Guarantee Placement year Securities and Insurance (1) Through cross a currency swap, the UF debt was exchanged for US dollar debt, leaving a net position of ThCh$4,843,040 as of December 31, 2003 which is included in other assets. Fifth Issue Issuer Securities issued Amount of issue 148 Adjustment Amortization term : Empresa Nacional de Electricidad S.A. : Dematerialized bearer bonds in local currency, expressed in Unidades de Fomento. : Eight million Unidades de Fomento (U.F. 8,000,000) divided into: - Series G: 4,000 bonds U.F. 1,000 each. - Series H: 4,000 bonds U.F. 1,000 each. : Variation in Unidad de Fomento. : Series G: October 15 2010. Series H: Six-monthly and successively as of April 16 2010. : Only for series G bonds, as of October 16 2004. : Series G: 4.8% per year, compounded every six months and effective on the capital not fully paid Pre-redemption Nominal interest rate adjusted by the value of the Unidad de Fomento. The interest rate to be applied every six months will be 2.3719%. Series H the value of the Unidad de Fomento. The interest rate to be paid every six months will be 3.0534%. Placement deadline Insurance. Security Payment of interests 2004. Interests accrued at year-end are ThCh$1,529,919 and they are presented in current liabilities. : 6.2% per year, compounded every six months and effective on the capital not fully paid adjusted by : 36 months as of date of registration in Securities Register of the Superintendency of Securities and : No specific security, except for general security of all the issuer’s properties. : Interests will be paid six-monthly, due on April 15 and October 15 of each year starting from April 15 II The Company has issued and placed three public offerings of bonds in the international market as follows: First Issuance Issuer Securities issued Issuance Value Readjustment Amortization year Nominal interest rate : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(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, year 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 Enersis / 2003 annual report Interest Payments Second Issuance Issuer Securities issued Issuance Value Readjustment Capital amortization Nominal interest rate Interest Payments Third Issuance Issuer Securities issued Issuance Value Readjustment Capital amortization Nominal interest rate Interest Payments : 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$12,488,977 (ThCh$15,265,158 in 2002), which is shown under current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(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 year : 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$8,436,908 (ThCh$10,312,351 in 2002), which is shown under current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(Yankee bonds) in the US market. : Four hundred million US Dollars (US$400,000,000) : : Variation in the US Dollar : Series 1 matures on 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$5,047,300 and ThCh$6,169,267 in 2003 and 2002, respectively, which is shown under current liabilities. Fourth Issue Issuer Securities issued under rules “Rule.144A” and “Regulation S”. Amount of issue Adjustment Capital amortization term Nominal interest rate Payment of interests : Empresa Nacional de Electricidad S.A. : Electronic negotiable bonds expressed in American dollars on the American and European markets, : Six hundred million US dollars (US$600,000,000) divided into: Series 01.08.2013: US$400,000,000 Series 01.08.2015: US$200,000,000 : Variation in US dollar. : Series of ThMUS$ 400 total maturity on August 1 2013. : Series of ThMUS$ 200 total maturity on August 1 2015. : Series of ThMUS$ 400 8.35% per year. Series of ThUS$ 400 8.625% per year. : Interests will be paid six-monthly on February 1 and August 1 each year starting from July 23 2003. Interests accrued at year-end were ThCh$13,116,983 and they are presented in current liabilities. 149 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- Ba 2 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$159,584 for each series. consolidated financial statements (7) Subsidiaries of Endesa S.A. I Endesa Chile Internacional issued Yankee Bonds on April 1, 1996. Risk rating of the bond issuance is as follows as of December 31, 2002: - Standard & Poor’s - Moodys Investors Services ISSUANCE TERMS First Issuance Issuer Securities issued Issuance Value Capital amortization Nominal interest rate Interest Payments Guarantee Category BBB- Ba 2 : Endesa Chile Internacional. : Marketable securities denominated in US$(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$1,603,260 (ThCh$1,959,649 in 2002) 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 amortization Nominal interest rate Interest payments Guarantee 150 : 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 December 31, 2003 and 2002 amounts to ThCh$0 and ThCh$2,333,602 and is shown in current liabilities. : Empresa Nacional de Electricidad S.A. (*) By way of a cross-currency swap operation, the debt in Euros was exchanged for U.S. dollar debt. At December 31, 2003, this issue is totally cancelled. 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 December 31, 2003 and 2002 amounts to ThCh$0 and ThCh$1,501,188 and is shown in Current Liabilities. : Empresa Eléctrica Pehuenche S.A. : Marketable securities denominated in US$. : One hundred and seventy million US Dollars (US$170,000,000) : Maturity as of May 1, 2003 : 7.3 % annually : Interest will be paid semi-annually in arrears, starting November 1, 1996. Accrued interest as of At December 31, 2003, this issue is totally cancelled III Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14, 2000 and November 27, 2000, August 22, 2001, June 6, 2003, September 4, 2003, October 29, 2003 and December 12, 2003 as per the following: First Issuance Issuer Securities issued Issuance value Capital amortization : Edegel S.A. : Marketable securities denominated in US$(120,000 bonds). : US$120,000,000 : June 3, 2006, February 14, 2007, June 13, 2007, November 26, 2005 and February 22, 2004, respectively. Enersis / 2003 annual report Nominal interest rate Interest payments Issuer Securities issued Issuance value Capital amortization Nominal interest rate Interest payments Issuer Securities issued Issuance value Capital amortization Nominal interest rate Interest payments Issuer Securities issued Amount of issue Capital amortization Nominal interest rate Payment of interests Issuer Securities issued Amount of issue Capital amortization Nominal interest rate Payment of interest : 8.75%, 8.41%, 8.75%, 8.4375% and 6.0% annually : Interest will be paid semi-annually, starting December 3, 1999. Accrued interest as of December 31, 2003 and 2002 amounts to ThCh$1,269,600, and ThCh$1,318,190 and is shown in other current liabilities. : Edegel S.A. : Marketable securities denominated in new soles (20,000 bonds). : 100,000,000 new soles : Maturity as of June 6, 2005. : 6.0% annually : ThCh$68,568 and ThCh$0 and is shown in other current liabilities. Interest will be paid semi-annually. Accrued interest as of December 31, 2003 and 2002 amounts to : Edegel S.A. : Marketable securities denominated in new soles (10,000 bonds). : 50,000,000 new soles : Maturity as of May 5, 2006. : 4.13% annually : ThCh$113,923 and ThCh$0 and is shown in other current liabilities. Interest will be paid semi-annually. Accrued interest as of December 31, 2003 and 2002 amounts to : Edegel S.A. : Negotiable Instruments in Nuevos Soles (10,000 bonds) : Fifty million nuevos soles (NS50,000,000). : Total maturity at October 10 2006. : 4.875% per year. : Interests will be paid six-monthly. Interests accrued at year-end are ThCh$70,800 and they are presented in current liabilities. : Edegel S.A. : Negotiable instruments in Nuevos Soles (10,000 bonds) : Fifty million Nuevos Soles (NS50,000000). : Total maturity at October 10 2006. : 4.75% per year. : Interests will be paid six-monthly. Interests accrued at year-end are ThCh$22.356 and they are presented in current liabilities. 151 IV Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001 of com the first issuance, and on February 26, 2003 from the second issuance as per the following: First Issuance Issuer Securities issued Issuance Value Capital amortization Interest nominal rate Interest payment Second Issuance Issuer Securities issued Issuance value Capital amortization Nominal interest rate Interest payments : Emgesa S.A. : Marketable securities denominated in Colombian pesos : $Col 530,000,000 : Maturities as of 2002, 2006, 2007, 2009 and 2010 for $Col 31,525,000; $Col 100,000,000; $Col 81,407,744; $Col 19,500,000 and $Col 297,567,256 respectively. : 15.5% annual average rate : ThCh$1,904,178 and ThCh$5,439,841 and is shown under current liabilities. Interest will be paid semi-annually. Accrued interest as of December 31, 2003 and 2002 amounts to : Emgesa S.A. : Marketable securities denominated in Colombian pesos : $Col 50,000,000 : Maturity as of July 26, 2006. : 15.18% annual average rate : Interest will be paid annually. Accrued interest as of December 31, 2003 and 2002 amounts to ThCh$1,164,287 and ThCh$223,180 and is shown in other current liabilities. Amortized bond discounts of Enersis S.A. and its affiliates of ThCh$21,025,338 and ThCh$19,583,113 as of December 31, 2002 and 2003, respectively are included in Other Assets (see Note 14). consolidated financial statements 20. accrued expenses a. Short-term accruals: b. Long-term accruals: Accrued expenses included in current liabilities are as follows: As of December 31, 2002 ThCh$ 2003 ThCh$ As of December 31, 2002 ThCh$ 2003 ThCh$ Bonus and other employee benefits 27,180,757 23,848,378 Advance monthly corporate and other taxes 7,070,602 7,639,831 Legation and other contingencies 21,468,598 4,802,668 Post-retirement benefits-Chilean subsidiaries 10,401,086 11,400,723 Construction and other Energy purchases a other Pension accruals Suppliers and services Others Total 7,244,769 2,711,826 Post-retirement benefits (Cerj Coelce) 39,019,281 37,982,596 14,606,379 6,403,478 Severance indemnity 1,811,021 1,773,893 Labor contingencies (Cerj) 8,641,873 10,636,080 109,134,019 158,876,188 6,357,124 12,985,061 Post-retirement benefits-foreign subsidiaries 72,758,940 87,905,846 7,110,976 1,178,920 Others 7,460,312 2,975,719 85,779,624 53,704,224 Total 254,486,113 317,416,983 Bad debts write-offs of ThCh$1,309,980 and ThCh$3,195,380 were recorded for the years ended December 31, 2002 and 2003, respectively. 21. severance indemnities 152 Long-term accruals include employee severance indemnities, calculated in accordance with the policy described in Note 2n. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Transfer to short-term Payments during the period Total As of December 31, 2002 ThCh$ 7,388,911 2,081,794 - (828,832) 2003 ThCh$ 8,400,118 2,801,092 (41,058) (524,072) 8,641,873 10,636,080 Enersis / 2003 annual report 22. minority interest a. Minority shareholders’ participation in the shareholders’ equity of the Company’s subsidiaries is as follows: As of December 31, 2002 As of December 31, 2003 Equity ThCh$ Participation % Total ThCh$ Equity ThCh$ Participation % Total ThCh$ Company Autopista Los Libertadores S.A. Cam Argentina S.A. 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. Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. 25,465,151 550,915 1,883,440 571,885,956 524,653,325 491,582,589 173,176,401 585,356,719 425,908,659 34,559,972 43,634,109 1,019,559,638 701,533,656 22,849,917 353,458 687,370,285 294,969,042 737,116,149 973,289,667 75,180,999 1,444,941,673 22,016,613 373,148,990 229,449,565 93,395,129 25,666,499 64,642,503 2,289,440 (13,460) 81,804 174,521,754 361,127,823 606,535,104 184,730,491 7,005,739 53,431,384 (4,273,191) 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% 12,733 550 25 280,796,004 75,433,605 2,002,022 83,241,500 219,056,803 7,440,146 17,279,986 21,380,713 525,985,364 304,537,745 287,350 159,056 250,503,852 117,987,616 251,415,708 501,408,665 3,766,568 - 513,485 2,268,316 464,741,947 427,549,420 406,438,881 169,484,178 446,403,953 426,495,495 43,956,845 32,999,474 827,256,794 533,453,412 - (547,964) 544,119,075 221,638,247 575,959,955 795,386,193 85,397,699 578,252,302 1,492,669,040 56,988,038 302,246,635 201,332,047 83,655,531 - - 2,202 150,636,590 79,871,394 28,083,916 687,863 25,857,001 54,088 (10) 6,136 55,166,327 135,603,498 333,594,313 13,577,691 2,977,439 24,044,123 (2,136) - 0.10% 0.001% 49.10% 14.38% 0.39% 35.74% 27.46% 1.76% 50.00% 49.00% 51.52% 43.41% - 45.00% 36.44% 40.00% 34.11% 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% - - - 513 30 228,188,296 61,472,200 1,601,856 60,565,015 122,584,959 7,449,863 21,978,423 16,169,742 426,206,054 231,573,636 - (246,584) 198,297,667 88,655,299 196,448,526 409,758,310 4,283,719 597,352,354 5,699 122,014,005 70,083,686 25,155,218 - - 153 2,561,114 2.36% 60,506 - - 132,003,816 286,769,700 487,492,327 194,308,570 6,918,050 55,277,858 (6,539,494) - - 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% - - 41,726,407 107,682,022 268,120,785 14,281,680 2,940,171 24,875,036 (3,270) Total 4,091,108,748 3,349,281,823 consolidated financial statements b. Minority shareholders’ participation in the net (income) or loss of the Company’s subsidiaries is as follows: Company Autopista Los Libertadores Cam Argentina S.A. 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 Luz de Bogotá S.A. Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. Total 154 As of December 31, 2002 As of December 31, 2003 Net income Participation ThCh$ % Total ThCh$ Net income Participation ThCh$ % Total ThCh$ 84,611 188,475 (719,263) (23,907,723) 7,428,523 35,856,858 (24,982,628) 9,102,554 31,311,681 (5,302,727) (3,290,720) 6,722,511 (20,555,300) (11,844,565) 592,704 (4,600,041) (19,956,887) (8,287,192) (56,730,401) (19,039,350) 9,412,247 10,888,971 (13,236,381) 26,030,227 26,767,299 99,306 (417,093) (932,483) 1,298 (6,293) (13,202,015) 200,235,743 4,557,123 (20,212,254) (105,662) (99,316) 2,946,920 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% 42 189 (9) (11,738,692) 1,068,058 146,031 (12,008,515) 3,406,431 547,161 (2,651,364) (1,612,453) 3,463,437 (8,923,114) (148,952) 266,717 (1,676,429) (7,982,755) (2,826,597) (29,225,744) (953,871) 3,766,694 1,089 (5,343,397) 9,061,122 8,048,926 2,661 (166,837) (22,030) 1 (473) (4,173,157) 75,188,523 2,506,419 (1,485,601) (44,907) (44,693) 1,474 16,445,385 - (62,762) (727,405) (8,613,883) 1,688,410 (4,314,551) (27,802,310) 98,773,475 (51,469,555) (13,177,857) (2,205,560) (18,020,379) 10,188,005 - 901,422 (31,881,870) (13,077,512) 27,101,386 (22,221,183) (37,165,525) (78,130,912) (38,333,485) (28,556,438) (13,610,490) (7,105,008) - - - 0.10% 0.001% 49.10% 14.38% 0.39% 35.74% 27.46% 1.76% 50.00% 49.00% 51.52% 43.41% - 45.00% 36.44% 40.00% 34.11% 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% - - - (63) (10) (4,229,417) 242,756 (17,005) (12,253,976) 27,123,735 (899,957) (6,588,929) (1,080,724) (9,284,172) 4,422,642 - 405,640 (11,618,965) (5,231,005) 9,243,746 (11,447,665) (1,864,297) (31,267,269) (3,833) (11,527,954) (4,737,812) (2,136,476) - - (1,601,578) 2.36% (37,837) - - (8,857,512) 8,682,013 (4,206,442) (45,798,189) 87,689 (788,606) 2,266,302 - - 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% - - (2,799,860) 3,260,096 (2,313,543) (3,366,167) 37,268 (354,873) 1,133 (78,324,793) 23. shareholders’ equity a. Paid capital The Extraordinary General Meeting of Shareholders of Enersis held on March 31st 2003 approved a capital increase of about US$2,000 million. The issue was registered in the Securities Register on May 23 2003 under No. 686 for Ch$1,473,225,403,563 pesos, divided into 24,382,994,488 shares. The operation was structured as follows: 2) Voluntary redemption of local bonds (from November 1 to 15), in which holders of local 269 bonds (series B1 and B2) may exchange their bonds for Enersis shares, according to the value assigned by the aforementioned independent expert and at placement price - Ch$ 60.4202 per share. 1) First preferential underwriting period (from May 31 to June 30), in which shareholders registered in the company register at last May 26 have the option of taking up 2.9408 new shares for each old one at a price of Ch$60.4202 per share. 3) Second preferential underwriting period (from November 20 to December 20), in which all Enersis shareholders registered five working days before the start of this new period, except for the controlling partner and its members, may participate. Enersis / 2003 annual report In this phase, shareholders may take up the remaining shares that were not underwritten at the close of the preferential underwriting period and at the conclusion of the voluntary redemption of local bonds. In this period, new issue shares may only be paid in cash at the same price of Ch$ 60.4202 per share. e. Other reserves ThCh$ Once the deadline for the capital increase has expired (December 30 2003), Reserve for accumulated conversion differences (15,428,363) Reserve for transaction entities using remeasurement method (10,243,322) its final amount will be the amount actually underwritten and paid in. At June 30 2003, end date of the first preferential underwriting period, 22,113,264,060 shares were underwritten for a sum of Ch$1,336,087,841,061 equivalent to 90.69% of the total issue. Of total shares underwritten in this preferential period, 14,406,840,511 shares were taken up by controlling shareholder Elesur for the equivalent of Ch$870,464,185,043 pesos and 7,706,423,549 shares by minority shareholders for the equivalent of Ch$465,623,656,018 pesos. Elesur underwrote and paid in its shares by capitalizing the financial credits that it held with Enersis on the date of underwriting, which, according to expert report drawn up by Mr. Eduardo Walker, which was approved by the Extraordinary Shareholders’ Meeting on March 31 2003, amounts to 86.84% of its par value, with the difference being recorded as a share premium of Ch$131,912,812,936. The second preferential underwriting period in November 2003 involved the voluntary exchange of 269 bonds, series B1 and B2. Holders converted Ch$63,656,586,836 into the equivalent of 893,612,466 first issues shares; the amounts underwritten were determined by experts by capitalizing Ch$46,964,178,894 for series B1 and Ch7,028,065,024 for series B2, at Ch$ 60.4202 per share. This operation meant recording a share premium of Ch$6,247,821,056. During the second preferential underwriting period, 1,244,542,758 shares equivalent to Ch$75,195,523,918 were subscribed. The second share underwriting period concluded on December 30, determining the capital increase, in which 99.9% of the capital authorized by the Extraordinary General Meeting of Shareholders, in other words 24,360,146,365 shares, was subscribed, leaving Enersis’ capital with a total of 32,651,166,465 subscribed and paid in shares. b. Dividends During the years ended December 31, 2002 and 2003 the Company no paid dividends c. Number of shares As of December 31, 2003 and December 31, 2002, respectively the number of shares authorized, issued and outstanding was 32,651,166,465 and 8,291,020,100 all of which have voting rights. d. Subscribed and paid capital is as follows: Total (25,671,685) Other reserves are composed of the following: Initial balance at January 1, 2003 Reserve for assets Reserve for liabilities Final balance at December 31, 2003 ThCh$ ThCh$ ThCh$ ThCh$ Cumulative translation adjustment 46,159,106 (253,265,921) 191,678,452 (15,428,363) Total 46,159,106 (253,265,921) 191,678,452 (15,428,363) Detail of changes in the reserve for accumulated conversion differences is as follows: Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Cerj S.A. Luz de Bogotá S.A. Investluz S.A. Central Geradora Termelétrica Fortaleza S.A. Synapsis de Colombia Ltda. Endesa Market Place Endesa Argentina S.A. Compañía Eléctrica Conosur S.A. Endesa de Colombia S.A. Central Costanera S.A. Ingendesa Do Brasil Ltda. Total 155 ThCh$ (7,733,126) 2,471,385 1,302,547 (4,503,144) (2,915,573) (4,985,333) 3,629,135 (2,662,889) 19,801 367,029 2,557,220 (2,954,154) 68,499 (79,994) (9,766) (15,428,363) The detail of the accumulated conversion difference reserve at December 31, 2003 is as follows: f. Net losses from operations and accumulated net income (losses) of development-stage subsidiaries are as follows: As of December 31, 2003 ThCh$ Shares Company As of December 31, 2003 Net income lossfor the period ThCh$ Retained earnings (accumulated deficit) ThCh$ As of December 31, 2002 Intercompany loan capitalization Bonds capitalization Subscribed shares 8,291,020,100 14,406,840,511 893,612,466 9,059,693,388 758,720,279 868,723,257 53,830,267 546,437,537 Compañía Eléctrica Taltal Ltda. Central Generadora Termoelectrica Fortaleza S.A. Aguas Santiago Poniente S.A. Infraestructura 2000 S.A. Gas Atacama Generación Ingendesa (Ingendesa do Brasil) Enigesa (Ingendesa do Brasil) - (1,292,923) (55,238) - - 44,914 580 147,835 (2,608,453) (167,940) 355,245 819,520 (1,855) (68) As of December 31, 2003 32,651,166,465 2,227,711,340 Total (1,302,667) (1,455,716) consolidated financial statements 24. other income and expenses a. The detail of other non-operating income is as follows: Adjustments to investments in related companies Gain on sale of property, plant and equipment Gain on sale of materials Gain on forward contracts and swaps Services - projects and inspections Penalties charged to contractors and suppliers CDEC-SING power settlement gain Public lighting and telephone lines Cost recoveries Recoverable taxes Effect of application of BT 64 (1) Gain on sale of subsidiaries Indemnities and commissions Dividend from investees Other Total (*) Sale of Compañía Eléctrica del Rio Maipo S.A. and Infraestructura 2000 S.A. 156 b. Other non-operating expenses are as follows: Adjustments to investments in related companies Cost of sales – materials Loss on sale of fixed assets Donations Effect of application of BT 64 (1) Contingencies and litigation Deferred expense amortization SIC power settlement loss Pension plan expense Revenue recovery Index UFIR Brasil Cerj Penalties and fines Cost of projects, inspections and other Provision for real estate projects Provision for write-off work in progress Other taxes Argentina and Brazil Loss on forward contracts and swaps Write-off fixed assets Others Total Enersis / 2003 annual report As of December 31, 2002 ThCh$ 517,322 3,511,474 2,681,149 4,863,450 14,525,962 7,017,364 11,264,690 13,660,931 5,163,916 6,451,499 212,921,872 - 3,213,534 10,839,568 14,592,594 2003 ThCh$ 7,529,538 3,142,819 3,830,847 - 16,165,628 7,283,913 1,604,824 11,996,639 12,278,321 5,080,587 19,677,720 89,285,108 3,591,404 4,288,277 11,821,164 311,225,325 197,576,789 As of December 31, 2002 ThCh$ 4,208,128 1,662,559 2,404,599 148,062 31,075,441 48,776,456 3,676,482 17,148,228 5,802,577 5,154,802 - 12,482,466 5,307,741 16,766,197 46,775,052 6,798,645 - 7,299,621 22,721,323 2003 ThCh$ 8,188,085 3,139,887 9,397,043 1,494,374 87,189,396 52,974,009 6,818,702 2,676,757 20,790,427 3,610,872 6,829,656 4,365,336 6,222,466 - 2,483,690 9,594,035 1,142,690 15,638,914 5,468,333 238,208,379 248,024,672 25. price-level restatement The (charge) credit to income for price-level restatement is as follows: Assets Inventory Current assets Property, plant and equipment Accounts receivable from subsidiaries Investment in subsidiaries Amortization of goodwill Other assets Price-level restatement of the income statement Net credits - assets Liabilities and Shareholders’ equity Shareholders equity Current and long-term liabilities Minority interest Accounts payable to subsidiaries Non-monetary liabilities Price-level restatement of the income statement Net charge-liabilities and shareholders’ equity accounts Net credits (charge) to income 26. exchange differences Index I.P.C. I.P.C. U.F. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C. I.P.C. U.F. I.P.C. I.P.C. - U.F. I.P.C. U.F. I.P.C. As of December 31, 2002 ThCh$ 1,092,619 6,117,451 51,700 71,893,309 5,083,009 2,701,811 26,045,738 23,398,374 189,167 18,451,848 2003 ThCh$ 324,537 9,634,298 12,493 23,367,200 1,762,523 1,990,421 6,259,407 18,247,746 69,242 (66,109) 155,025,026 61,601,758 (35,729,346) (79,057,836) (8,701,419) 17,707,548 (24,290,502) (52,471) - (19,886,461) (6,939,971) (50,396,993) (1,412,702) 7,619,133 (15,675,723) (93,288) (72,800) 871,195 (150,010,487) (66,101,149) 5,014,539 (4,499,391) 157 The (charge) credit to income for foreign currency translation is as follows: Assets Cash Time deposits Marketable securities Accounts receivable, net Prepaid expenses Other current assets Amounts due from related companies Non-current assets Long-term receivables Amounts due from related companies Deferred expenses Other assets Forward contracts and swaps Currency US$ Euro Other US$ Other US$ Other US$ Euro Other US$ US$ Other US$ US$ U.C. US$ US$ US$ US$ As of December, 31 2002 ThCh$ 2,698,211 - (13,835) 266,765 (31,365) 494,092 - 220,306 - 42,961 29,736 6,786,792 (142,245) - 2003 ThCh$ 2,850,565 (1,524) (238,858) (26,152,483) (6,922) (169,033) (19,546) (458,528) 32,835 (47,542) (62,642) 2,541,960 (1,355) (80,463) 605,943 204,029 11,193,324 230,340 6,606,448 16,197,938 (12,379,444) (222,446) (28,911,189) - (204,265,262) 21,876,845 Liability Currency Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Current portion of notes payable Accounts payable Miscellaneous payables Accrued expenses Deferred income Other current liabilities Dividends payable Long-term liabilities Due to banks and financial institutions Bonds payable Notes payable Accounts payable Other long-term liabilities Forward US$ Euro US$ Yen U.P. Euro US$ US$ US$ Euro Other US$ US$ Other US$ US$ Other Other US$ Yen Euro U.P. US$ US$ US$ US$ Other US$ As of December, 31 2002 ThCh$ 2003 ThCh$ (2,659,647) - 3,587,599 (72,424) (244,524) (26,389) (2,123,443) (865,294) 477,636 - (870,274) (655,650) (104) - (365,914) 84,826 - 1,858 6,653,542 (3) 7,374,930 56,071 167,230 87,199 13,329,822 2,248,465 110,039 (45,861) 432,188 1,325,272 640,372 (975) 19,356 775,133 631,225 45 (22,873,343) (182,578) (61,092) (372,406) (25,245,051) (2,842,535) 361,815 (6,713,858) 3 - 108,669,368 39,275 1,008 14,043 111,608,434 5,972,670 (173,051) 10,852,174 - (31,127,244) Total gain (loss) 45,389,440 (245,715,032) Total gain (loss) (61,660,789) 239,660,727 Exchange difference - net loss (16,271,349) (6,054,305) consolidated financial statements 27. cash flow statement • Other financing disbursements for the year ended 2003 In the item “Other financing disbursements”, in the cash flow from financing activity, the following items are included disbursements of commissions for debt refinancing in the amount of ThCh$57,188,457, forward contract payments in the amount of ThCh$40,816,629, collar and collateral derivative contracts premiums in the amount of ThCh$5,459,187, payments to Siemens A,G, Alemania of ThCh$4,555,075 and other disbursements in an amount of ThCh$8,011,269. • Other investment incomes for the year ended 2003 In the item “Other investment incomes”, in the cash flow from investment activities, the following items are included income from the recovery of loans granted to the ex-subsidiary Infraestructura 2000 in the 28. share issuance costs amount of ThCh$47,899,341, capital return amount of ThCh$1,230,126 and other items in the amount of ThCh$658,870. Non-Cash Financing Transactions • Capital increase. On June 2 2003 Elesur S.A. capitalized the financial credits that it held with Enersis S.A. for ThCh$1,002,376,998, which transaction did not generate a cash flow. Details of this transaction are explained in note 23b). In November 2003 there was a voluntary exchange of bonds in connection with the capital increase of Enersis. Holders converted ThCh$63,656,587 into 893.612.466 first issue shares; this operation did not generate any cash flow. Details of this transaction are referred to in note 23b). a. Expenses incurred at the close of these financial statements for issuing and placing the shares, outstanding at December 30 2003, were recorded as described in Note 2 ab) and break down as follows: b. Expenses incurred for issuing and placing debt instruments incurred each year in placing bonds are as follows: As of December 31 As of December 31 158 Appraisal services Printing costs Legal cost Financial adviser DCV commissions Bank commissions Risk classification services Total 2002 ThCh$ - - - - - - - - 2003 ThCh$ 75,326 13,954 199,989 10,377,599 2,990 1,448,873 139,613 12,258,344 2002 ThCh$ 1,463,307 755,595 1,725,416 7,307,869 - 2003 ThCh$ 2,176,804 2,595,871 853,328 - 55,390 Taxes Commissions Financial adviser Insurance issue Others Total 11,252,187 5,681,393 Enersis / 2003 annual report 29. financial derivatives As of December 31, 2003 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 derivative Type contract Nominal amount US$ Date of maturity Item Sale / Purchase Hedge item Amount Amount Hedge item ThCh$ ThCh$ Assets/Liabilities Account ThCh$ FR FR FR FR FR FR FR FR FR FR OE OE OE OE OE OE OE OE OE S S S S S S S S S S S S S S S S S S S (1) S (1) S (2) CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCTE CCTE CCTE CCTE CI CI CI CI CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCTE CCTE CCTE CCTE CCTE CCTE CCTE CI CI CCPE CCPE CCPE 17,000,000 I quarter 04 Exchange rate 17,000,000 I quarter 04 Exchange rate 20,000,000 I quarter 04 Exchange rate 17,000,000 I quarter 04 Exchange rate 17,000,000 I quarter 04 Exchange rate 20,000,000 I quarter 04 Exchange rate 14,000,000 I quarter 04 Exchange rate 219,000,000 III quarter 03 Exchange rate 76,000,000 I quarter 04 Exchange rate 5,000,000 II quarter 04 Exchange rate 11,800,000 III quarter 04 Interest rate 50,000,000 III quarter 04 Interest rate 50,000,000 III quarter 05 Interest rate 150,000,000 I quarter 06 Interest rate 550,000,000 II quarter 06 Interest rate 100,000,000 II quarter 04 Interest rate 350,000,000 III quarter 04 Interest rate 150,000,000 I quarter 06 Interest rate 250,000,000 III quarter 06 Interest rate 273,495 IV quarter 03 Exchange rate 13,008,308 I quarter 04 Interest rate 98,916,783 I quarter 04 Exchange rate 10,800,763 II quarter 04 Interest rate 5,750,485 II quarter 04 Exchange rate 62,746,133 III quarter 04 Exchange rate 546,990 IV quarter 04 Exchange rate 820,485 I quarter 05 Exchange rate 175,000,000 II quarter 08 Interest rate 50,000,000 I quarter 04 Interest rate 15,000,000 I quarter 04 Interest rate 50,000,000 III quarter 04 Interest rate 3,191,000 III quarter 04 Interest rate 35,381,000 IV quarter 04 Interest rate 14,000,000 II quarter 05 Interest rate 50,000,000 II quarter 06 Interest rate 11,657,290 I quarter 04 Exchange rate 115,000,000 II quarter 08 Interest rate 94,470,311 III quarter 06 Exchange rate 94,470,311 III quarter 06 Exchange rate 50,000,000 III quarter 06 Exchange rate S (2) CCPE 50,000,000 (1) Fr = Forward, S = Swap III quarter 06 Exchange rate P P P S S S P S P P P P/S P/S P/S P/S P/S P/S P/S P/S P P P P P P P P P P/S P P/S P P P P P P/S P P S S Bonds Bonds Bonds Bonds Bonds Bonds Bonds 10,094,600 10,094,600 Other assets/liabilities s/t 10,094,600 10,094,600 Other assets/liabilities s/t 11,876,000 11,876,000 Other assets/liabilities s/t 10,094,600 10,094,600 Other assets/liabilities s/t 10,094,600 10,094,600 Other assets/liabilities s/t 11,876,000 8,313,200 11,876,000 Other assets/liabilities s/t 8,313,200 Other assets/liabilities s/t Accounts Amount ThCh$ 910,556 910,556 1,062,641 (688,330) (688,482) (812,650) 31,311 Income Realized ThCh$ Unrealized ThCh$ - - - - - - - 945,243 945,030 1,101,819 (688,330) (688,482) (812,650) 31,360 Other current assets 130,042,200 130,042,200 Other assets/liabilities s/t 8,570,040 11,384,569 8,420,887 Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations 45,128,800 45,128,800 Other assets/liabilities l/t 2,969,000 7,006,840 2,969,000 Other liabilities s/t 7,006,840 Other liabilities l/t 29,690,000 29,690,000 Other liabilities s/t other assets l/t 29,690,000 29,690,000 Other liabilities l/t 89,070,000 89,070,000 Other liabilities s/t other assets l/t 2,129,811 (52,182) (484,967) (35,105) (1,057,852) (2,157,097) Bank obligations 326,590,000 326,590,000 Other liabilities s/t other assets l/t (12,474,660) Bank obligations Bank obligations 29,690,000 29,690,000 Other liabilities s/t 44,535,000 44,535,000 Other liabilities s/t - - - - Other liabilities s/t Other liabilities s/t 162,401 7,724,333 162,401 Other liabilities s/t 7,724,333 Other liabilities s/t 58,736,786 58,736,786 Other liabilities s/t (656,251) (1,108,795) (230,914) (120,816) (16,637,093) (2,182,501,690) (11,243,673,373) (9,734,826) (1,569,669) - (114,728) (310,843) (642,231) (1,210,272) (5,554,191) (1,411,094) (2,237) 47,352 (7,571) (111,812) (99,276) (1,318,021) (656,251) (5,423,005) (1,108,795) (4,138,451) (3,481,620) (230,914) (120,816) - - - (23,390,093) (2,186,184,690) (11,198,577,048) Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bank obligations Bonds Bonds Bonds Bonds 6,413,493 3,414,638 6,413,493 Other liabilities s/t (1,082,648,739) (20,808,251) (1,105,905,990) 3,414,638 Other liabilities s/t (777,432,324) (23,907,865) (813,301,189) 37,258,654 37,258,654 Other liabilities s/t (3,034,406,503) (1,379,621,025) (5,314,493,527) 324,803 487,204 324,803 Other liabilities s/t 487,204 Other liabilities s/t 103,915,000 103,915,000 Other liabilities s/t other assets l/t 29,690,000 29,690,000 Other liabilities s/t 8,907,000 8,907,000 Other liabilities l/t 29,690,000 29,690,000 Other liabilities l/t 1,894,816 1,894,816 Other liabilities l/t 21,009,238 21,009,238 Other liabilities l/t 8,313,200 8,313,200 Other liabilities l/t 29,690,000 29,690,000 Other liabilities l/t 6,922,099 6,922,099 Bank obligations - 0 Other liabilities s/t 66,384,753 66,384,753 Others asstes/liabilities l/t 1,689,160 35,135,243 307,398 1,689,160 Others asstes s/t 35,135,243 Others asstes/liabilities l/t 307,398 Others asstes s/t (34,413,842) (48,375,002) 486,670 394,874 (277,898) 1,100,608 (213,174) (353,311) (1,166,223) (1,653,733) (442,792) (165,046) 10,288,282 1,060,056 (5,445,243) (434,352) - - (46,751,842) (70,158,002) 159 (901,962) (1,482,082) - (747,764) - - - - - (22,460) (264,761) (227,128) (277,898) (458,817) (213,174) (353,311) (1,166,223) (1,653,733) (442,792) (165,046) - 15,242,584 7,276,312 1,060,055 - (6,605,724) (1,610,706) (434,351) Within the compass of the financial strengthening plan, approved in October 2002, Enersis and its subsidiary Endesa Chile have obtained financing during this year by placing bonds on the local market and on the US market; this has enabled them to obtain financing with a fixed rate debt and prepay obligations with banks which had a variable rate. The above, together with prepayment of borrowings made using resources obtained from the capital increase, has reduced the variable debt by about US$1,550 million. As a result of the above, hedging instruments covering variable rate borrowings, which were refinanced at fixed rates or prepaid, now have no associated debt and, therefore, appear in the derivatives schedule as investments. consolidated financial statements - - - - - - - - - - - - 30. commitments and contingencies Direct guarantees held by third parties: Guarantee Banco del Estado de Chile Arriendo Maq. y Const. Talca Ltda. Director Aduana de Chile Bancos Acreedores Mitsubishi Corp. Pehuenche S.A. Pehuenche S.A. Pangue S.A. Pangue S.A. San Isidro S.A. Chat. Mortg. Without conveyance Equipment Bank bond Bill of exchange Mortgage and pledge Real Estate, properties Chattel mortgage Facilities Crédito Sindicado Citibank N.A. Pehuenche S.A., Pangue, Celta Financial guarantee Banco Estado Tunel el Melón Pledge over 45% of income Soc. de Energía de la República Argentina Endesa Argentina, Central Costanera S.A. Pledge Mitsubishi Banco Santander Central Hispano Varios Acreedores J.P. Morgan e ING Baring Central Costanera S.A. Cono Sur S.A. Endesa Matriz Central Costanera Pledge Prenda Bank bond Pledge Shares Facilities Shares Facilities Indirect guarantees held by third parties: Subsidiary Type guarantee Type Currency Accounting value Currency 2003 2002 2004 2005 2006 Commited assets Pending balance at December 31, Release of guarantees ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 9,940,774 - 53,442 86,239,360 80,895,593 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 3,867 2,519 53,442 940,632 - 3,867 2,519 65,322 53,442 - - - - - - 14,350,944 20,433,809 3,149,680 3,149,585 2,168,378 33,809,253 57,972,160 - - - - ThCh$ 168,639,200 - 28,106,531 140,532,669 1,348,922 88,013,134 12,624,188 54,844,852 - 60,567,600 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 5,729,877 7,148,286 11,686,578 12,090,308 12,624,188 - 90,033,203 139,032,394 1,309,333 1,133,633 60,567,600 - - - - - - - - - - - - Guarantee Subsidiary Relation Type Currency Accounting Value Currency 2003 2002 2004 2005 2006 2008 Committed assets Pending balance at December 31 Release of guarantees Citibank N.A. Midlabank (BSCH) Endesa Chile Internacional Endesa Chile Internacional Banco Santander Central Hispano Endesa Chile Internacional J.P. Morgan & Co. Y C.S.F.B. BNP BBVA Mitsubishi Co. Banco Español de Crédito Banco Santander ABN Bank Chase Manhattan Bank Endesa Chile Internacional Endesa Chile Internacional Endesa Chile Internacional Cía. Eléctrica San Isidro S.A. Cía. Eléctrica Tarapacá S.A. Cía. Eléctrica Tarapacá S.A. Cía. Eléctrica Tarapacá S.A. Endesa de Colombia S.A. Banco Santander Central Hispano Cía. Eléctrica Conosur S.A. Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor Subsidiary Guarantor ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ - - - 90,673,260 - - 33,809,252 22,023,058 - 1,758,906 - 90,033,203 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ - - - 363,285,519 5,725,137 112,031,532 - - - - - - - - - 90,673,260 110,829,064 - 90,673,260 99,145,500 - - 153,389,137 153,389,137 33,809,252 49,589,674 22,023,058 33,297,279 - 776,322 - - - - - 1,758,906 4,310,602 1,758,906 - 207,576,479 90,033,203 139,032,394 - - - - - - - - - - - - - 33,809,252 - 22,023,058 - - - - - - - 90,033,203 160 Litigation and other legal actions: Enersis S.A. Individual i. Mercedes Jimenez de Arechaga with Enersis S.A., Enersis S.A. Agencia Islas Caimán, Enersis Internacional, Chilectra S.A., Chilectra S.A. Agencia Islas Caimán and Empresa Nacional de Electricidad. On May 30, 2000 Pérez Companc S.A., today PECOM ENERGIA S.A. and PCI Power Edesur Holding Limited (together, “PECOM”) commenced an action against Endesa-Chile, Chilectra and Enersis (together, “Enersis Group”) before the Arbitration Court of the International Chamber of Commerce, Paris, France. PECOM has petitioned the court to either: Recognize its alleged right to nominate both a director and an alternate director in addition to the directors whom it already has the right to nominate in Distrilec Inversora; or State that PECOM and the Enersis Group should each have an equal number of directors in Distrilec Inversora. On August 2, 2000, Enersis Group contested PECOM’s action and presented a counterclaim requesting the court to terminate several agreements among the parties. Likewise, PECOM requested to be compensated by the Enersis Group if the agreements among the parties were terminated. Based on the provisional estimates made by PECOM, the Arbitration Court determined that the amount of the suit is between US$ 180-200 million. The parties have presented their arguments, evidence and final allegations. The Arbitration Court issued an arbitration award on September 2, 2002, ruling that Enersis Group and PECOM keep their rights to nominate equal number of board members in Distrilec Inversora S.A. and rejecting not only the Enersis Group’s counterclaim, but also Epsom’s claim for compensation of approximately US$ 200 millions. Enersis Group challenged the arbitration award through an appeal for annulment, which was filed before the Uruguayan Court of Appeals. The Republic of Uruguay is the domicile established by the Arbitration Court for all legal purposes. The Uruguayan Court of Appeals has concluded the probative year and is working on the final judgment. On June 18, 2003, Montevideo’s Civil Court of Appeals, 2nd Circuit, ruled on an unappealable basis that the ruling of the Arbitration Court of the International Chamber of Commerce stands, therefore the Arbitral Award remains definitive. In this context, on November 5 2003 notice has been served of the petition to regulate lawyers’ fees arising from challenging the arbitral award as invalid, petitioning that they be set at between US$1,270,000 and US$15,210,000. These amounts are based on differing circumstances. US$15,210,000 is calculated on the basis of the amount set for the Arbitral Award in the respective “Mission Record”. This figure is a claim enforced by Petrobrás Argentina at the end of the arbitration proceeding’s hearing period in the sense that, if the ruling declared the aforementioned agreements of shareholders null and void, said Groups should be indemnified with the above amount. Since the above ruling declared that the shareholders’ agreements remained in force, the International Chamber of Commerce rejected this subsidiary claim. US$1,270,000, in contrast, is obtained based on the amount of Ur$400 million set by the court for certain social security contributions demanded from the lawyers in Uruguay. Since both figures are not presented as subsidiary to each other, the Company’s Uruguayan lawyer understands that the most the plaintiff could aspire to is an award for the lower figure, i.e. US$1,270,000. Enersis / 2003 annual report Furthermore, when the remedy of invalidity was filed it stated that the matter was not susceptible to pecuniary valuation, and this was not disputed. On November 19 2003, a plea was raised in defense against the petition to regulate the fees. On December 10 2003, notified on December 16 2003, the appeal for reconsideration of judgment filed by the Company’s side so that proceedings would move on to receiving evidence was disallowed, and the proceeding stayed in the award stage. ii. Court: 2nd Labor Court of Santiago Process number Cause Process status : : : Amounts involved : 6061-2001 Complaint filed for severance pay for years of service on December 19, 2001 by Mr. Guillermo Calderón Ortega against Enersis S.A. On 01/31/2003 appealable judgment was passed, endorsing the petition. An appeal for annulment was filed in the manner ThCh$52,858 iii. 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. On December 18 2003, all parts of the petition were disallowed, since the court judged that it was incompetent to try the case. Decision appealed. iv. Court : 25th Civil Court of Santiago Process number Cause Process status : : : Amounts involved : 3151-00 Complaint filed for compensation of damages by Mrs. Odette Legrand Halcartegaray against Enersis S.A.. On January 31 2003 the decision was handed down disallowing the petition. This decision has been appealed. ThCh$50,000 v. 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 the Court, as requested, carrying out all the discharges it deemed reasonable in accordance with law and expressly rejected CMET’s accusations because of their unfounded nature. On 11.09.03, the Court ruled on this appeal, disallowing all of its parts, with costs. CMET filed an appeal for reconsideration of this verdict, with alternative appeals, which have still not been ruled on. Amounts involved: Undeterminable. vi. In a Meeting on March 7 2003, the Board of Directors of the Company agreed unanimously to submit the dispute with the Argentine Republic over the investments made by the Enersis Group in that country through Enersis S.A., Empresa Nacional de Electricidad S.A., Enersis Internacional, Chilectra Internacional and Chilectra S.A., to international arbitration by the International Center for the Settlement of Differences Involving Investments between States and Nationals of other States, C.I.A.D.I. On July 22 2003, Ciadi recorded the petition for arbitration. The procedure for appointing and forming the arbitration panel is currently ongoing. vii. Appealable tax proceeding, that is to say, before the Internal Revenue Service, because of the difference of ThCh$62,400 between First Category Income Tax and Repayment of Monthly Provisional Payments for absorbed profits from the 1998 tax year. This proceeding is at the sentencing stage. viii. Appealable tax proceeding, that is before the Internal Revenue Service, because of the difference of ThCh$1,461,400 between First Category Income Tax and Repayment of Monthly Provisional Payments for profits absorbed from the 1999 tax year. This proceeding is at the discussion stage. ix. Appealable tax proceeding, that is before the Internal Revenue Service, because of the difference of ThCh$900,000 between First Category Income Tax and Repayment of Monthly Provisional Payments for profits absorbed from the 2000 tax year. This proceeding is at the discussion stage. Enersis’ Subsidiaries: Chilectra At December 30 2003, there are legal actions for compensation for damages against the Company, whose effects management does not consider significant, based on reports by its legal advisors and the fact that the Company has taken out insurance covering this kind of event, making provisions for the respective deductibles. 161 Inmobiliaria Manso de Velasco Limitada Mr. Mauro Valero Gómez arbitration proceeding. Mr. Valero performed some services and professional consultancy activities aimed at obtaining property tax rebates, agreeing to a sucess fee for results within a specified period of time. The contract was terminated at the stipulated term, subsequent to which Mr. Valero sued for about Ch$ 100 million. The litigation is currently in the Santiago Court of Appeal, because of an appeal by this Company. Court case 6.196 – 2000. The case appears on the Court of Appeal’s schedule on Friday January 23 in the fourth position. The appealable arbitral award ruled payment of Ch$37 million of the Ch$100 million claimed. Filiales Construcciones y Proyectos Los Maitenes S.A. y Sociedad Agrícola Pastos Verdes Limitada. The subsidiaries Construcciones y Proyectos Los Maitenes S.A. and i. Sociedad Agrícola Pastos Verdes Limitada, Lawsuit against Appraisal of Compensation for Expropriation of Land for the Road Junction in Arturo Merino Benítez Airport Access Road. In order to build the Road Junction, the Chilean Government expropriated a piece of land and compensation was paid based on an appraisal by experts according to Expropriation Procedures. Suit was filed against the Appraisal, and there is an appealable decision which raised the compensation by about UF 35,000. The case is pending in the Court of Appeal, Court Case 7930-1999, and to date it has still not appeared on the Schedule. consolidated financial statements ii. Arbitration proceeding involving Carlos Alberto Cruz Claro y Compañía Ltda. Plaintiff: Carlos Alberto Cruz Claro y Compañía Ltda. against the assessment and fines for Income Tax (years 1997, 1998 and 1999), and for IGV (year 1999). iii. Defendant: Inmobiliaria Manso de Velasco Limitada, who also sued. Contents of lawsuit: Carlos Alberto Cruz Claro y Compañía Ltda. is the entity that provided professional architectural services for the Puerto Pacífico Project. The other party considers that a clause of the contract, clause 12, stipulates an all event indemnity for sale of the land. Manso de Velasco asserts that payment only applies, if the architectural project is included in the sale, which is not the case. Amount: the Company’s being sued for UF 7,440 (Ch$127 million). Process status: Pleas for defense have been raised and the litigation is in the period allowed for producing evidence. Conciliation hearing took place. Based on the decision by the Tax Court in Decision 06604-2002 of November 20, 2002, the Superintendency of Tax Administration SUNAT has issued Intendency Resolution 01501-50000031 on July 9, 2003 which, with regard to the most significant discrepancy, in other words, the objection to excessive tax allowance and cost taken on revalued property, plant and equipment in 1996 as a result of the merger, resolves to object to the 1996 appraisal process and, therefore, to disregard the revaluation assigned to EDELNOR’S fixed assets, imputing income tax debts to the company for about (in thousands) US$35,466, US$5,300 and US$19,525 respectively, including fines and interest, for the years 1997, 1998 and 1999. iv. There are other legal actions involving expropriations affecting properties of Agrícola e Inmobiliaria Pastos Verdes Ltda. These involve complaints about the amount of compensation set. According to the company’s lawyers, none imply any contingencies for the company. Edelnor S.A. i. At December 31 2003, the subsidiary has various legal actions filed against it for about US$ 10.4 million. According to Management and its legal advisors, these legal actions will not result in significant liabilities for the financial statements of Inversiones Distrilima S.A. (the Company). From November 2000 to July 2001, tax authorities reviewed the subsidiary’s Income Tax and General Sales Tax (IGV) for the period from 1995 to 1999. As a result of that review, in July 2001 the National Superintendency of Tax Administration (SUNAT) notified the subsidiary via several resolutions of assessments and fines regarding Income Tax and IGV for the periods under review. 162 From the items mentioned, the amount not accepted and not paid by the subsidiary concerns the Tax Administration’s pretension of applying Final Temporary Provision Seven of Law 27034 and, therefore, to disregard, as of 1999, the subsidiary’s right to a tax allowance for depreciation from the increase in value as a result of the revaluation of its assets resulting from the merger that took place in 1996, pursuant to Law 26283, even though the subsidiary has a Legal Stability Agreement that has stabilized its income tax system until the year 2006. The amount claimed is about (in thousands) US$129,720. On August 9 2001, the subsidiary commenced an arbitration proceeding against the Ministry of Energy and Mines, representing the State of Peru, according to the provisions of clause eight of the Legal Stability Agreement. On August 14 2001, the Ministry of Energy and Mines expressed its agreement to an arbitration proceeding and, subsequently, it expressed its agreement to the make-up of the Arbitration Court, whose members were appointed by agreement of the parties. On November 22 2001, the Arbitration Court issued it arbitration award whereby it declared that the subsidiary’s complaints regarding the inapplicability of Final Temporary Provision Seven of Law 27034 were well-founded, pursuant to the Legal Stability Agreement signed with the State of Peru. Therefore, the Arbitration Court recognizes the subsidiary’s right to a tax allowance for the depreciation on the increase in value from revaluations made in previous years. On August 1 2003, the subsidiary filed an appeal against the Intendency Resolution. The subsidiary appealed against payment of the above items. By means of Note 722-2003-2H3100 of August 27 2003, Tax Administration sent the case file of the appeal lodged by the subsidiary with the Tax Court, after having evaluated compliance with admissibility requirements. On September 11 2003, the subsidiary lodged a argument brief with the Tax Court expanding the appeal. On the same date, the subsidiary lodged an argument brief attaching evidence defending the position put forward in the appeal. To date, the subsidiary is waiting for a pronouncement by the Tax Court. Management and the legal advisors of the Company and subsidiary are of the opinion that there are solid arguments for the Tax Court to issue a pronouncement in due time that will be favorable to the interests of the subsidiary. ii. On December 17 2003, the subsidiary received Assessment 012-003- 0001833, whereby the Tax Administration intends to collect (in thousands) US$3,758 for an alleged higher Income Tax for year 1996, and (in thousands) US$1,561 for an alleged infringement of numeral 1 of Article 178 of the Tax Code, consisting of declaring false figures or data that influence assessment of the income tax liability for the year 1998. This assessment was issued in compliance with the provisions of Intendency Resolution 1501-50000031, subject of appeal case file 5047- 2003. To date, the subsidiary is in the process of preparing a recourse of complaint, whose deadline for presentation expires on January 16 2004. Management and the legal advisors of the Company and its subsidiary are of the opinion that there are solid arguments for obtaining a result that is favorable to the interests of the subsidiary. Cerj S.A. On the basis of management estimates and the legal counsel opinion, Cerj established a provision of ThUS$232,346 of which ThUS$60,136 relates to labor lawsuits related to overtime, unjustified layoffs and hardship pay, ThUS$43,528 to civil lawsuits filed by former customers for interest and penalties charged on late payments of energy bills and ThUS$128,682 to tax lawsuits, related to collection of taxes and penalties. SUNAT did not void its decisions as a result of the arbitration award, so, on December 3, 2001, the subsidiary filed an appeal in the Tax Court The Company is the defendant in other civil, tax and labor cases amounting to ThUS$ 83,362 at December 31 2003. The company’s legal Enersis / 2003 annual report advisors consider that these contingencies will not have an adverse impact on the Company. Endesa S.A. – Parent Company i. Court: Supreme Court of Argentina Process number Cause : : Process status : Amounts involved : ii. Court: Arbitration Court Process numbe Cause : : Process status : Amounts involved : 2753-4000/97 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. 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. ThCh$3,156,128 ($Arg 13,943,572.54) (Includes tax, interest and fines). N/A 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. Endesa replied to the complaint sustaining that the plaintiff is distorting the facts, omitting information that was provided by Endesa-Chile, altering the risks covered by the contract and is unaware of the stipulations in the policy; that the flood that affected the Cofferdam was an insurable risk, included in the policy, and therefore it should be rejected since it has no foundation in fact or in law. ThCh$6,531,800 (ThUS$11,000). iii. Hqi Transelec Chile S.A. vs. Endesa. Lawsuit Contents: Action by arbitration proceeding on the additional usage charges for the connections of Endesa’s customers, Codelco Salvador, since October 1, 2001, CMP (Cia. Minera del Pacifico), Emelat and Eso La Silla, since January 1, 2002, for the usage of transmission facilities by the plaintiff. Transelec requests that Endesa be sentenced to pay $3,617,831,425 (US$4,955,933), which Endesa would owe it by way of additional usage charge, for Endesa’s usage of its transmission system to supply electricity to the abovementioned customers. Endesa states that said usage charge is not applicable, because the sectors of the transmission system it uses to provide such supply is within the area of influence of Endesa’s Power Stations, and as provisioned in the Basic Usage Charge Agreement signed with Transelec, Endesa is entitled to circulate electricity for those customers without paying additional usage charges. Endesa also argues that the Additional Usage Charge Agreement for said customers expired along with the validity of the past supply agreements, and therefore a new additional usage charge agreement should be entered into with Transelec; in the meantime, the law should be abided by regarding the sectors contained within the area of influence of Endesa’s Power Stations, and neither payment of additional usage charges, nor payment of basic usage charges regarding backflow sectors are applicable. Process Status: On July 30, 2003, the Court pronounced sentence. The ruling was in favor of ENDESA and completely rejected the action in all its parts, unanimously. HQI TRANSELEC filed a complaint and dismissal recourse in the form. ENDESA became a party arguing against the recourse, and requested a joint hearing. The recourses were heard in Court on January 9 2004. The trial hearing is pending. iv. Arbitration proceeding for Breach of Contract and Forced Performance Thereof filed by Empresa Eléctrica Capullo S.A. against Endesa. Judge Mr. Sergio Urrejola Parties: Plaintiff : Defendant : Empresa Eléctrica Capullo S.A. Empresa Nacional de Electricidad S.A. Two actions are being brought in the lawsuit: The first, contained in the main petition, is for breach of contract, enforced performance thereof and a subsidiary action for compensation for damages: The arbitrator is petitioned: 1.- To declare that Endesa has not performed the contract that is the subject of this litigation (contract dated April 1 1995 for the purchase of electricity). 2.- Declare that Endesa must pay Capullo Ch$ 1,243,489,606, plus current interest, by reason of payment of the purchase price for energy supplied to Endesa from January 1998 to March 2000, inclusive, or, alternatively, the amounts and interests determined by the arbitrator on the merits of the case; all of this plus any VAT that might apply according to the respective law and as determined by the arbitrator; 163 3.- As an alternative to the above two petitions, declare that Endesa should be sentenced to pay Ch$1,243,489,606 by way of compensation for damages caused as a result of failing to comply with said payment obligation, plus legal interests and adjustment from the date on which the lawsuit was filed to its actual payment, or, alternatively, the amount, adjustment and interest determined by the Arbitrator on the merits of the case plus VAT, if, as determined by the Arbitrator, said tax should be imposed. The second, which is contained in the lawsuit’s first accessory petition, is for compensation for damages due to breach of the aforementioned contract for the sale of energy during the period from January to December 1997 and petitions that Endesa should be sentenced to pay Ch$ 170,419,646 plus legal interest and readjustment from the date on which the lawsuit was filed to its actual payment, or, alternatively, the amount, adjustments and interest determined by the Arbitrator on the merits of the case plus VAT, if so considered and decreed by the Arbitrator. Endesa contested the lawsuit, stating that it owes nothing to Capullo, since the price stipulated in the Contract for the Sale of Energy was the differential cost of energy determined by CDEC-SIC, and that the differential costs for the periods in the lawsuit have not been officially determined by CDEC-SIC, since there are differences for determining said prices that are pending a resolution by the Ministry of Economy. It also points out that the values determined by CDEC-SIC, which are referred to in the lawsuit, are referential values and have not been officially approved, so the difference consolidated financial statements between what Endesa paid provisionally for the energy purchased from Capullo and the amounts demanded by the latter have not been able to be established, since one of the essential parameters for making the comparison is missing. Defendants : Empresa Nacional de Electricidad S.A. Francisco Fernández Montero Luis Felipe Acuña Rivas Rene Agustín Lara Montoya Inversiones Cirrus Current Process status: Once the period of discussion had concluded, the arbitrator summoned the parties to a conciliation hearing on June 5 2003, which was held. Each party presented its proposal. Awaiting for a further summons to the parties as part of conciliation procedures. Arbitration Proceeding Minera Los Pelambres against Endesa. San v. Isidro – Piuquenes Line. Parties: Plaintiff : Defendant : Arbitrator : Minera Los Pelambres Empresa Nacional de Electricidad S.A. Mr. Orlando Poblete Iturrate Summary of proceedings: On October 28 1996 Endesa and Minera Los Pelambres signed a contract for the supply of electrical power and energy. In this contract, ENDESA promised to build several installations to provide this supply, including a 220 kV line between the San Isidro Substation and the Los Piuquenes Substation. According to the contract, Pelambres had an option to purchase that line, which it exercised. The purchase was executed on June 12 2002, by a public deed drawn up and registered by Notary Public Raúl Undurraga Laso. This purchase contract contains several declarations by ENDESA in the sense that the line is in perfect working order and that it was designed and built under criteria defined in the supply contract. Summary of proceedings: An incident occurred in Fundo La Esperanza de Marchigue owned by the plaintiffs on August 21 1998. The lawsuit is based on the fact that, as a result of these incidents, the defendants filed a criminal complaint for kidnapping, which criminal complaints were dismissed because of a lack of merit, after hearing the plaintiffs. The plaintiffs consider that the criminal complaints that were dismissed have caused them moral damages for which they seek the following indemnities: Francisco Javier Errázuriz Talavera Francisco Javier Errázuriz Ovalle Matías Errázuriz Ovalle Ch$ 700,000,000.- Ch$ 350,000,000.- Ch$ 350,000,000.- The total lawsuit is for Ch$ 1,400,000,000.- (US$ 2,153,846.-) Process status: All defendants notified. Pleas for defense raised. Plaintiff’s answer lodged. Rejoinder given. Parties summoned for conciliation hearing, notification pending. vii. Ordinary Proceedings for Invalidity and Other Actions filed by Sociedad Punta de Lobos S.A. against Endesa, Celta and Chilean Treasury in the 30th Civil Court of Santiago. Case Number 4061-2002. 164 Minera Los Pelambres considers that the declarations made by ENDESA in the line purchase contract were not true, since the line has evidenced several technical problems that would seem to be the result of design faults, so it has sued ENDESA petitioning that ENDESA should be sentenced to pay for the damages caused, which it considers to be of two types: : Parties Defendants : Contents of lawsuit : : Sociedad Punta de Lobos S. A. Plaintiff Endesa, Celta and Chilean Treasury. On August 22 2002 Endesa and Celta were notified of a lawsuit filed by Sociedad Punta de Lobos S.A. in the 30th Civil Court of Santiago against Endesa, Celta and the Chilean Treasury. Those involving the cost of repairing the line, which it estimates to be US$ 22,752,263. Those arising from the decrease in equity of Minera Los Pelambres because of having purchased a line in conditions other than those that it could study when it opted to purchase it, which it estimates to be US$ 6,486,009. The total amount of the lawsuit is US$ 29,238,272. Alternatively, if this lawsuit is not accepted, it sues ENDESA petitioning that the latter should be sentenced to pay damages arising from its liability as designer and builder of the line, which damages it estimates to be the same as the amounts specified above. Process status: Discussion period has been concluded. The conciliation hearing took place. There was no conciliation. Term for presenting evidence is running. vi. Errázuriz Francisco Javier and Others against Empresa Nacional de Electricidad and Others. Suit for compensation for damages in the 24th Civil Court of Santiago. The lawsuit petitions that the assign and transfer, or any legal transaction by Endesa to Celta, whether for valuable consideration or not, whose object is the real estate by nature or adhibition that makes up or forms part of the maritime concession given to Endesa in the sector of Punta Patache, should be declared absolutely null and void. It also petitions the forfeiture of the maritime concession as Endesa has committed a series of violations of the law regulating maritime concessions that constitute grounds for forfeiture of the concession, and, therefore, all construction built on the concession’s land must be incorporated cost-free into the equity of the Chilean Treasury, and that Sociedad Punta de Lobos is entitled to obtain a reward, recompense or prize amounting to 20% of the net value of those assets for having recovered them for the Treasury. Endesa maintains that the lawsuit is unfounded, since there has never been any transaction by Endesa alienating the maritime concession or the properties making up the concession to Celta; that the buildings or improvements built by Celta on the properties of the concession have been done in performance of a mandate given to it by its parent company Endesa to act on its own behalf; that the plaintiff has no legal interest in the invalidity filed, since it is not party to the concession contract. Case Number 3622-2003. Parties : Plaintiffs : Francisco Javier Errázuriz Talavera Francisco Javier Errázuriz Ovalle Matías Errázuriz Ovalle Process status: On August 28 2002, the plaintiff managed to secure that Court decree a precautionary measure prohibiting any transactions or Amount: There is no given amount for the litigation. Enersis / 2003 annual report contracts to be entered into on the maritime concession given to Endesa and on the real estate by nature or adhibition that makes up or forms part of said concession. Endesa y Celta raised dilatory pleas consisting of the incompetence of the Court to hear the case. A) With regard to the declaration of forfeiture because it is a matter exclusively within the jurisdiction of the Ministry of National Defense B) with regard to the declaration of invalidity, because, if there is any contravention, the law considers another penalty to be imposed by another authority other than the Courts, and C) with regard to the reward or prize, because it is the exclusive prerogative of the President of the Republic. Process status: On June 19 2003, the plaintiff sought and procured that the Court decree a precautionary measure prohibiting transactions or contracts to be entered into with regard to Puerto Patache and ordered the Undersecretary for the Navy to be notified, which was done. By a decision on July 14 2003, the Court specified the scope of the precautionary measure decreed in the proceeding in the sense that it does not prevent Puerto Patache from being transferred, which decision was appealed by Punta de Lobos, since the injunctions against further petitioned moves had been denied twice. The Court endorsed the plea of incompetence with regard to forfeiture and reward, but maintained its competence with regard to the invalidity action and ordered pleas to be raised in defense against the petition. With regard to the substance of the case, the discussion stage is over and the evidence submission stage has concluded; on November 6 2003 the Court summoned the parties to hear the verdict. The plaintiff appealed. Endesa and Celta also appealed. ix. Sociedad Punta de Lobos against Chilean Treasury, Case Number 553- 2003, in 21st Civil Court of Santiago. On September 8 2003, the Court of Appeal endorsed the appeal filed by Punta de Lobos with regard to the plea of incompetence endorsed in the first instance. As a result of the above, Endesa and Celta raised pleas in defense against the second and third petitions and then Punta de Lobos lodged its answer; the enjoinder procedure which terminates the discussion stage to give rise to the evidence stage is still pending. Procedures for the petition by Endesa and Celta to have the precautionary measure lifted continued in parallel fashion. viii. Ordinary Proceeding for Performance of Contract Filed by Sociedad Punta de Lobos S.A. against Endesa, Celta and Terminal Marítimo Minera Patache S.A. in the 8th Civil Court of Santiago, Case Number 129-2003. Parties Plaintiff Defendant : : : Sociedad Punta de Lobos S.A. Chilean Treasury Summary of Proceedings: The plaintiff petitions that Supreme Decree 139 of 2002 of the Ministry of Defense, Undersecretary for the Navy, should be declared invalid by public law, since it was issued contravening the provisions that the Law considers for its issuance; that the aforementioned Supreme Decree 139 has not entered into effect in a valid fashion, and, therefore, it cannot have any legal effect. Decree 139 endorsed the expansion of Endesa’s Maritime Concession for shipping salt through Puerto Patache, which was one of the conditions stipulated in the promise of purchase/sale signed by Endesa and Celta and Terminal Marítimo Puerto Patache S.A.. 165 Parties Plaintiff Defendants : : : Sociedad Punta de Lobos S.A. Empresa Nacional de Electricidad S.A. Cía. Eléctrica Tarapacá S.A. Terminal Marítimo Minera Patache S.A. Process status: The Treasury was notified of the lawsuit. The plaintiff obtained a precautionary measure to “immediately stay any effect of decree 139 of 2002 of the Ministry of Defense’s Undersecretary for the Navy, and said agencies must refrain from performing any administrative action, or action of any kind, that impinges on or is related to said Decree.” Summary of proceedings: The plaintiff petitions that forced performance of the so-called “Bidding Contract” called by Celta and in which both the latter and Endesa, Terminal Marítimo Patache S.A. and Punta de Lobos S.A. were involved, should be ordered; that the act whereby all the bids submitted to Celta on occasion of the Puerto Patache bidding process were rejected is inexistent, or alternatively absolutely invalid, or alternatively imputable to Punta de Lobos, since it comes from exercising a right that is only apparent and not real and is based on catering to an interest that has not been protected by the Regulations regulating said bidding; that the Purchase and Sale Contract of November 30 2001 between Celta and Endesa, as selling promisors, and Terminal Marítimo Minera Patache, as purchaser promisor, is invalid; that the intent manifested by the bidders Endesa and Celta in the Contract of Promise of Sale/Purchase of November 30 2001, entered into with Terminal Marítimo Minera Patache S.A., was a tacit acceptance of the bid submitted by Punta de Lobos in the Puerto Patache bidding process. Endesa maintains that the lawsuit is unfounded since, according to the bidding conditions, both Endesa and Celta were fully empowered to reject all bids submitted in the bidding process, without giving their reasons; that there has never been any contract, not even a tacit one with Punta de Lobos, so there are no grounds for requesting that a non-existent contract that does not exist be performed. After several incidences, the court accepted Endesa’s participation as a contributory third party with the Treasury. Amount: Undeterminable. The discussion stage is over, in other words, the Treasury and Endesa raised pleas in defense asking for the lawsuit to be rejected. Punta de Lobos answered and the former two made their rejoinders, with the court order for evidence having been issued on October 17 2003. With regard to the precautionary measure, Endesa’s petition for it to be declared null and void, is pending a decision. x. Other contingencies There are other proceedings for lesser amounts that in aggregate amount to ThCh$2,500,013 at December 31 2003 (ThCh$ 1,914,034 in 2002). consolidated financial statements Endesa-Chile Subsidiaries Pehuenche S.A. i. Court: 20th Civil Courthouse of Santiago Process number Cause Process status Amounts involved : : : : 5863-2001 Empresa Eléctrica Pehuenche S.A. versus Empresa Eléctrica Colbún S.A. This complaint is for services rendered by Pehuenche S.A. to Colbún during a drought. Case is awaiting sentencing. ThCh$1,187,600 (ThUS$2,000). ii. 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. iii. Court : 24th Civil Court of Santiago Process number Cause : : Process status : 166 Amounts involved : 3908-99 A precautionary prejudicial measure was presented and denied by the Tribunal. In the same proceeding Pehuenche presented an ordinary public law motion to vacate against Sociedad Austral de Electricidad S.A. Sentence was passed on December 10, 2002. Pehuenche has appealed the verdict and is awaiting the decision of the Appeals Court of Santiago. Undeterminable. iv. Court: 17th Civil Courthouse of Santiago Process numbe Cause : : Process status Amounts involved : : 3940-99 Pehuenche versus Chilectra S.A. A precautionary prejudicial measure was presented and denied by the Tribunal. Pehuenche presented in the same case, an ordinary suit to annul public rights against Chilectra S.A. Summoned to hear sentence Undeterminable. v. Court: 20th Civil Courthouse of Santiago Process number Cause : : Process status Amounts involved : : 4005-99 A precautionary prejudicial measure was presented and denied by the Tribunal. Pehuenche presented in the same case, an ordinary public law motion to vacate against Empresa Eléctrica Atacama S.A. Summoned to hear sentence Undeterminable. vi. Court: Santiago Court of Appeals Process number Cause : : 6515-99 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 : Amounts involved : Pending hearing. CDEC-SEC report ordered once again to hear the case. Scheduling is pending Five fines for a total of 1,610 Units of Tax Measurement (“UTM”) or ThCh$47,880. vii. 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. Sentenced passed but not notified. Process status: Verdict notification pending. Amounts involved: Fine of ThCh$14,870 (500 UTM). x. Court : 16th Civil Courthouse of Santiago Process number Cause Process status Amounts involved : : : : 4164-97 Claim against Resolution 856, resulting in a fine imposed on October 16, 1997, for failure on May 11, 1997. Rejected recourse, appeal prepared, awaiting reopening of file. Fine of ThCh$13,383 (450 UTM). xi. Court: 16th Civil Courthouse of Santiago Process number Cause Process status Amounts involved : : : : 1928-98 Claim against Resolution 331 dated May 8, 1998, for failure on October 13, 1997. Rejected recourse, pending appeal. Fine of ThCh$8,922 (300 UTM). xii. Authority: Superintendence of Electricity and Fuels (SEC) Process number Cause Process status Amounts involved : : : : N/A Reposition appeal before the SEC for Resolution 805 dated May 2, 2000 for a fine for failure on July 14, 1999. Pending resolution. Fine of ThCh$142,747 (400 UTA). xiii. Appeal for Reconsideration of Judgment before the SEC for Resolution No. 1,429 dated August 14, 2003. Said resolution imposed a fine of UTA 1,500, for the blackout which occurred on September 23, 2002. xiv. Court: 3rd Local Police Court of Santiago Process number Cause Process status : : : Amounts involved : 50419-AGO SERNAC with Pehuenche, claim for lack of electricity supply The accusation was rejected and SERNAC appealed. The case was tried. Decision is pending. SERNAC’S appeal endorsed. Court ordered 3rd Court to hear the accusation directly. Sentence was passed and Pehuenche was ordered to pay a fine of 50 UTM. Appeal lodged with the Santiago Court of Appeal. Fine of ThCh$1,487 (50 UTM). Enersis / 2003 annual report Empresa Eléctrica Pangue S.A. i. Court: 1st Civil Court of Santiago Process number Cause : : Process status Amounts involved : : 1294-99 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 usage of its customers. Pangue made itself a party before the Court of Appeals. A motion to vacate was filed before the Supreme Court. Case is pending to be heard. Fine of ThCh$297 (10 UTM). ii. Court: 1st Civil Court of Santiago 2273-99 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: On June 16, 2002, a judgment was passed ordering a fine to be paid. Pending official notification of judgment. Fine of ThCh$14,870 (500 UTM). 4293-97 Claim against SEC Resolution N°856 dated October 16, 1997, which fined for a blackout on May 1, 1997. On May 31, 1999, judgment was passed ordering fine to be paid. Appeal made on November 29, 1999 and is pending hearing. Fine of ThCh$13,383 (450 UTM). Process number Cause : : Amounts involved : iii. Court: 23rd Court Process number Cause Process status : : : Amounts involved : iv. Court: 23rd Court Process number Cause Process status : : : Amounts involved : Request to annul obligation to pay compensation to regulated price users derived from electric rationing decree N°287 issued by the Ministry of Economy. Judgment pronouncement pending Undeterminable. Process status Amounts involved : : vii. Appeal for Reconsideration of Judgment before the SEC for Resolution No. 1.432 dated August 14, 2003. Said resolution imposed a fine of UTA 1,000, for the blackout which occurred on September 23, 2002. viii. There are 37 administrative oppositions presented by Pangue S.A. before the Provincial Government of Malleco, to the corresponding requests of diverse individuals to amend water use rights in the Commune of Lonquimay. ix. Remedy of Protection – Illustrious Municipality of Hualqui and Empresa Eléctrica Pangue. Court of Concepción. Case Number 1.799-2002. Parties: Appellant : Respondent : Illustrious Municipality of Hualqui, VIII Región, Empresa Eléctrica Pangue S.A. Contents of Lawsuit: The Illustrious Municipality of Hualqui filed a constitutional demand for protection against EMPRESA ELECTRICA PANGUE S.A., claiming an illegal, arbitrary omission, which caused damages and ravages among the population on the shores of the Bío Bío River in the community of Hualqui, as a result of opening the floodgates in the winter of 2001, as the river rose suddenly following the rains, without prior warning. Amount: Not quantified. Process status: The Court of Appeal rejected the demand. The appellant appealed to the Supreme Court. The Supreme Court upheld the decision of the Court of Concepción. 167 Closed with favorable result for Pangue S.A. x. Appeal of Protection Carlos Castillo Osorio and others against Empresa Eléctrica Pangue S.A., in the Concepción Court of Appeal. Case Number 2.178-2003. 1910-98 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. Appealed to the Court of Appeals and is pending hearing. Fine of ThCh$14,870 (500 UTM). Parties: Appellant : Respondent: Contents of appeal : Carlos Castillo Osorio and others Empresa Eléctrica Pangue S.A. The appellants, all inhabitants of Hualqui, filed a remedy of protection against Pangue S.A. maintaining that the generating company has systematically flooded the lands of the inhabitants of Hualqui, due to arbitrary handling of the dam’s floodgates. Pangue claimed expiry of the statutory time limit and lack of entitlement of the appellants. Pangue obtained information about the remedy. Data requested from government departments is being attached. The remedy should be rejected as being unfounded. v. Authority: Superintendence of Energy and Fuels (SEC) Process number Cause Process status Amounts involved : : : : N/A Appeal before the SEC to set aside SEC Resolution N°740 dated April 26, 2000 which fined Pangue for a blackout on July 14, 1999. Decision on appeal for reconsideration of judgment is pending. Fine of ThCh$107,060 (300 UTA). vi. Court: 18th Civil Court of Santiago (Chilectra) Process number Cause : : 3886-99 Ordinary public right annulment complaint. Process status Prognosis : : xi. Remedy of Protection Junta de Vecinos Hualqui against Empresa Eléctrica Pangue Case Number 2126-2003, Court of Concepción. Parties: Appellant : Respondent: Junta de Vecinos Hualqui and others. Empresa Eléctrica Pangue S.A., Intendent of Region VIII of Bio Bio. consolidated financial statements 168 The plaintiffs filed a constitutional action against the generating company, alleging that, on June 21 2003, it committed an illegal, arbitrary act in handling the dam’s floodgates. Process status: The suit was notified on December 31 2003. Since procedures were violated in serving the notice, the Court was petitioned to declare the notice null and void. This petition has still not been ruled on. Pangue raised a plea in defense that the plaintiffs are not principals of the constitutional actions, that the remedy is unintelligible, that there is no violation of constitutional guarantees, that it is inadmissible because the grounds or facts on which the plaintiffs base their suit are unjustified. Process status: Information on remedy obtained by Intendent and by Pangue S.A., steps and documents pending to hear the remedy. xiv. Municipality of Hualqui and Pangue S.A. in Second Civil Court of Concepción Case Number 6693-2003. This is a summary judgment lawsuit based on Law 19.300 on the Environment, which seeks redress and compensation for environmental damages allegedly caused by operation of the Pangue Power Station, especially by the flows in 2001 and 2002. xii. Petition for Invalidity and other Actions “Aranguiz and Others and Inversiones Ilihue S.A. and Others”, Case Number 4.663-2003 in 29th Civil Court of Santiago The following actions and measures of protection and mitigation are being petitioned for redress of environmental damages: 1. Construction of a retaining wall with the following characteristics: Contents of lawsuit: A group of minority shareholders, former workers of Pangue S.A., filed suit against Asesorías e Inversiones Ilihue S.A., Bancard S.A., Empresa Eléctrica Pangue S.A., Elesur S.A., Servicios Financieros S.A. and José Cox Donoso. The suit petitions that a series of transactions and contracts pursuant to which these shareholders sold their shares to Ilihue S.A. and Bancard S.A. should be declared invalid, since they are impaired by several irregularities of consent, with compensation for damages amounting to UF. 75,557.97; that, as a result of these invalidities, other transactions made by Servicios Financieros S.A. should be declared null and void; that Elesur S.A. must return Pangue S.A.’s shares acquired on June 2 2003 to the plaintiffs and that the transactions entered into by Pangue S.A., omitting their summons to the shareholders’ meeting, are unenforceable on the plaintiffs, and, especially, that the agreements reached in the Shareholders’ meeting on April 10 2003 are unenforceable. a. b. c. Rock fill on the right bank of the Bío Bío River along 2,200 meters; cost Ch$770,000,000. Levees with about 200 meters of rock fill protection; cost Ch$30,000,000. Channeling of 600 meters of the Hualqui Stream; cost Ch$120,000,000; 2. Obligation to issue a warning when the Pangue Power Station’s floodgates are opened. 3. Compensation for damages caused, evaluated at Ch$1,000,000,000. Current process status: Conciliation hearing held, petition was made in the hearing to change the proceeding to ordinary law and, alternatively, a plea was raised in defense against the suit. Current status: Pangue S.A. was notified of the lawsuit on November San Isidro S.A. 19 2003. Pleas were raised in defense against the suit. i. Court: 7th Civil Court of Santiago xiii. Petition for Invalidity and Compensation for Damages “Aránguiz and others against Empresa Eléctrica Pangue S.A., and Empresa Nacional de Electricidad S.A.” Case Number 8895-2003 in the 7th Civil Court of Santiago Process number Cause : : Parties: Plaintiffs : Defendants : Aránguiz Córdoba Juan Francisco and others (all former shareholders of Pangue S.A.) Empresa Eléctrica Pangue S.A. Empresa Nacional de Electricidad S.A. Process status Amounts involved : : 2195-99 Resolution No. 628 dated April 27, 1999 for infraction of Article 183 of Supreme Decree 327, issued by the Chilean Ministry of Economy, by not establishing the independent Dispatch and Control Center before January 1, 1999. Summoned to hear sentence. Fine of ThCh$14,870 (500 UTM). Summary of proceedings: The plaintiffs, all former shareholders of Pangue S.A., petition that the contract signed by Pangue S.A. and Endesa on September 25 2000, called “Establishment of Voluntary Easement”, should be declared invalid, because, in the opinion of the plaintiffs, it suffers from several defects that are grounds for invalidity. They assert that they have active competency to sue because they were shareholders of Pangue S.A. when said contract was signed. They assert that, as a result of that contract, their shares in Pangue S.A. dropped in value, and therefore they are suing for Ch$2,521,996,400 (US$4,424,555). They also assert that, if said contract had not been signed, Pangue S. A. would have distributed dividends to the plaintiffs for US$ 1,742,211. It must be pointed out that, via the aforementioned contract, Pangue S.A. established a voluntary easement on its water rights so as to allow the tailwater of Endesa’s Ralco Power Station, located upstream, to use the end part of the Pangue dam’s tailwater. ii. Court: Superintendence of Energy and Fuels (SEC) Process number Cause Process status Amounts involved : : R : : N/A Appeal to set aside before the SEC the SEC esolution N°719 dated April 24, 2000, which fined San Isidro ThCh$53,530 (150 UTA), for a blackout on July 14, 1999. Decision on appeal for reconsideration of judgment is pending. Fine of ThCh$53,530 (150 UTA). iii. Appeal for reconsideration of judgment before SEC for SEC Resolution 1.428 of August 14 2003. This resolution imposed a fine on San Isidro of ThCh$178,434 (500 UTA), for the black out on September 23 2002. Enersis / 2003 annual report iv. File No. 2753-4000/97 Cause: Resolution regarding Stamp Tax (includes taxes, interest and fines), amount that eventually must be paid by TGN and Endesa, according to gas transportation contracts signed by both companies on October 17, 1995 and February 20, 1998. Notified on March 27, 2001. Reconsideration will be requested. TGN filed a precautionary measure with the Supreme Court of Argentina to interrupt the procedure initiated by the Providence of Neuquén, which was accepted, and in consequence, the administrative claim proceeding is currently pending. Amounts involved: ThCh$3,156,128 ($Arg13,943,572.54). v. Cause: On June 12, 2003, an arbitration proceeding was filed were against San Isidro and Endesa-Chile by Minera Los Pelambres in order for the arbitrator to declare the non-fulfillment of San Isidro with the energy and power supply contract originally signed by Endesa-Chile with Pelambres on October 28, 1996 and which on January 26, 2000, Endesa-Chile assigned to San Isidro, leaving it subsidiarily obligated for the obligations arising from the contract with San Isidro. The complaint is founded on interruptions and unavailability of electricity during 2001 and 2002, which according to the contract are penalized with fines, which San Isidro has refused to pay. Process status: Evidence issues set and term for presenting evidence is running. Amounts involved: ThCh$1,589,745 (US$2,677,241) plus the readjustment established in the contract and common interest up to the date of the effective payment. also requests that the concession be taken away from Endesa-Chile due to alleged violations of the laws that regulate marine concessions, and that all assets constructed on the concession lands be converted to property of the Government. Endesa-Chile contends that the plaintiff lacks a legal interest in its claim due to the fact that it is not a party to the concession contract. On August 28, 2002 the Tribunal declared as a precautionary measure the prohibition to take action or execute contracts in respect to the marine concession granted to Endesa-Chile and in respect to the real estate which by nature composes or forms part of that concession. Process status : On September 8, 2003, the Court of Appeals accepted the recourse of appeal filed by Punta de Lobos regarding the exception of in competence accepted in first instance. As a result of the above, Endesa and Celta defended the suit regarding the second and third claims to which Punta de Lobos replied, and the rejoinder proceeding is still pending which ends the discussion stage and commences the evidence stage. Similarly, the request by Endesa and Celta for the lifting of the precautionary measures continued. Amounts involved: Undeterminable. Compañía Eléctrica de Tarapacá S.A. iv. Court: 12th Civil Court of Santiago 169 i. Court: Superintendence of Energy and Fuels (SEC) Process number Cause : : Process number Cause Process status Amounts involved : : : Official Letter 4966 Formulation of SEC charges, dated August 3, 2000 for SING blackout on September 23, 1999. Pending SEC Resolution. Undeterminable. ii. Court: 20th Civil Court of Santiago Process number Cause Process status : : : Amounts involved : 2760-2000 Verification of Credit in Inmobiliaria La Cascada Agreement. Report No. 1 was received from the Liquidating Commission. A first distribution of funds from the sale of goods took place; Celta received ThCh$60,557. ThCh$203,718. Process Status : iii. Court: 30th Civil Court of Santiago Amounts involved : 5237-2002 Lawsuit against Empresas Eléctricas del Norte Grande S.A. (EDELNOR et al, including Celta) for reimbursement of compensation paid by the electrical distributors Empresa Eléctrica de Arica S.A., Empresa Eléctrica de Iquique S.A. and Empresa Eléctrica de Antofagasta S.A., to their customers due to the blackout on July 25, 1999 of the Sistema Interconectado del Norte Grande (SING). The complaint is directed against EDELNOR, Electroandina, Norgener, AES Gener and Celta to jointly reimburse the electrical distributors for the sums paid to end users in compensation for unsupplied energy. The discussion period ended. On August 19, 2003, the Court issued a resolution that admitted the evidence and set the evidence issues. It is in the evidence stage, pending notice. ThCh$64,269 (US$91,378) Process number Cause : : 4061-2002 Lawsuit for annulment and other actions filed by Sociedad Punta de Lobos S.A. against Endesa-Chile, Celta and the Chilean Government. The complaint requests that any attempted assignment, transfer, or any legal action presented by Endesa-Chile to Celta be rejected with respect to the marine concession granted to Endesa-Chile in the Punta Patache sector. It v. Court: 8th Civil Court of Santiago. Process number Cause : : 129-2003 Lawsuit brought against Endesa S.A., Celta S.A. and Terminal Marítimo Minera Patache S.A. by Sociedad Punta de Lobos S.A. regarding the rejection of its offer for the concession to operate the Minera Patache sea terminal, which Punta de Lobos S.A. considers a breach consolidated financial statements of contract. Endesa S.A. maintains that no such contractual obligations regarding the concession exists. In discussion. Undeterminable. Process status Amounts involved : : On July 14, 2003, the Court issued a resolution that specified the scope of the precautionary measures pronounced in the trial, stating it does not prevent the transfer of Puerto Patache. Said resolution was appealed by Punta de Lobos, and the requested injunction to preserve the status quo was denied twice. In the background, the discussion stage and the period to submit evidence have ended. On November 6 2003, the court summoned the parties to hear the verdict. vi. Court: 21th Civil Court of Santiago. Plaintiff Defendant Cause : : : Process status : 170 Sociedad Punta de Lobos S.A. Chilean Treasury The plaintiff requests that decree 139 is filed. This decree accepted extension of Endesa’s Marine Concession for shipping salt via Puerto Patache, which was one of the conditions established in the promise of sale that Endesa and Celta signed with Terminal Marítimo Puerto Patache S.A. Therefore, if the lawsuit is accepted, said operation would be at risk. The plaintiff obtained a precautionary measure for “immediate suspension of the decree. Endesa and Celta are parties in the lawsuit. The discussion stage has ended, that is, the IRS and Endesa defended the suit requesting its denial, Punta de Lobos replied, and IRS and Endesa replied to the counterclaim, and a writ of evidence was issued on October 17, 2003, therefore after the presented reconsiderations are resolved, the trial stage will begin. As regards to the precautionary measures, Endesa’s request to set them aside is still pending Amounts involved : Undetermined. Hidroeléctrica El Chocón S.A. Federal Public Revenues Administration - General Tax Services (FPRA- i. GTS) On December 28, 2000 the Federal Public Revenues Administration - General Tax Services (FPRA-GTS) notified Hidroeléctrica El Chocon S.A. that it owed ThCh$352,055 of taxes related to failure to withhold income tax on certain payments made abroad for a bank loan obtained in 1994. It was also determined that Hidroeléctrica El Chocón S.A. must pay ThCh$799,868 for related accrued interest calculated as of December 20, 2000. Hidroeléctrica El Chocón S.A. did not make these payments as it considered them relating to foreign source income and therefore not subject to taxes. Hidroelectrica El Chocon S.A. entered a plea in which it objected to payment of the taxes. FPRA-GTS has also fined Hidroeléctrica El Chocón S.A. ThCh$246,438 which Hidroeléctrica El Chocón S.A appealed by on February 20, 2001. On December 28, 2000 Hidroeléctrica El Chocón S.A. was notified that it owed accrued interest related to value-added-tax for the year from December 1993 to July 1995 amounting to ThCh$159,302 as of December 11, 2000, as well as an imposed fine of ThCh$210.111. On February 20, 2001 Hidroeléctrica El Chocón S.A. filed an appeal with the courts under the premise that Chilean law does not require payment of fines, including accrued interest, for obligations or infractions committed before July 31, 1995. On February 20 2001 the Company filed an appeal in the Nation’s Tax Court. ii. Royalties On June 26, 2000, Hidroeléctrica El Chocón S.A. was notified of a lawsuit for interest to be paid related to royalties, initially amounting to ThCh$356,290. Additionally, on September 27, 2000, the Company was notified of a new complaint from the province of Neuquén against the State and hydroelectric generators of Comahue to obtain royalties earned on accumulated funds in the Salex Account. The complaint does not state the precise amount or date as of which the sums claimed are considered as owed, but seeks charges from each generator equal to 12% of the funds contributed to the account. iii. Provincial Revenue Department of the Province of Buenos Aires On September 10 2001 the Company received a notice from the Provincial Revenue Department of the Province of Buenos Aires of an official assessment of ThCh$ 347,567 (which does not include interests or fines) for tax on gross income from tax periods from February 1995 to December 1998. The differences claimed are due to: a) failure to pay tax in the Province of Buenos Aires from February 1995 to June 1996 on contracts entered into by the Company, and b) the use of a lower rate than should have been applied, according to the Treasury. On October 25 2001, the Company included a debt of ThCh$ 128,906 in the easy payment system provided for in Law 12.727. On December 28 2001, the Provincial Revenue Department notified the Company of Resolution 655/01, which (i) determined that the Company had a tax shortfall of ThCh$197,389 for tax on gross income during the tax periods from February to December 1995, January to December 1996, January to December 1997 and January to December 1998; and (ii) imposed a fine on the Company of ten percent of the amount that allegedly was not paid. On January 22 2002, the Company filed an appeal asserting that the amount included in the extended period payment system had not been computed and the reasons why the rate specified by the Provincial Revenue Department should not be applied. The Management of Hidroeléctrica El Chocón S.A., as well as its legal advisors, are of the opinion that the claims made by the aforementioned tax authorities are unfounded, so these issues will probably not give rise to any significant adverse effect on the Company’s equity and results recorded at December 31 2003. Hidroinvest S.A. On December 27, 2000 Hidroinvest S.A. was notified that it owed tax of ThCh$782,157 for gains made in 1993 on the difference between the acquisition cost and transfer price of bonds, accrued interest of ThCh$1,682,419 and related fines of ThCh$547,510. On February 19, 2001, Hidroinvest S.A. filed an appeal against the notice. On September 12 2002, Hidroinvest S.A. was notified of the registration of the General Property Restraining Order on the Company’s properties as part of a precautionary procedure commenced by AFIP-DGI pursuant to the provisions of article 111 of law 11.683, as a result of the obligation to pay the above amounts. An appeal was filed against the resolution that decided the admissibility Enersis / 2003 annual report of the precautionary measure, and this was granted on November 25 2002. Likewise, on July 10 2003, the Nation’s Tax Court issued a decision confirming the precautionary measure and Hidroinvest S.A. was notified on December 29 2003. Hidroinvest S.A.’s legal advisors are of the opinion that these issues will probably not result in any significant negative impact on the Company’s equity and results at December 31 2003 Central Costanera S.A. Central Costanera S.A. has a debt obligation corresponding to an agreement related to Work Order No. 4322 (the “Agreement”). Central Costanera S.A. has fixed the obligation at the rate of one peso equal to one US dollar in accordance with applicable laws. However, certain laws have excluded several obligations from this fixed exchange rate, and should the Secretary of Energy rule that the obligations of Central Costanera S.A be excluded, an appeal would be filed. Central Costanera S.A. considers that the obligation resulting from the Agreement does not dovetail with any of the hypotheses provided for in the aforementioned decree and, even in the event that it was understood to do so, there are solid grounds for deciding the unconstitutionality of the aforementioned decree. In November 2002, the Tax Court issued its decision stating that: (i) SUNAT will have to review and make a new pronouncement considering the provisions of the Arbitration Award of April 22 2002, which was favorable to Edegel S.A., and which involves deducting the depreciation due to revaluation of the fixed assets and (ii) decided against it in other issues brought by SUNAT. On July 9 2003, Edegel S.A. was notified by the National Superintendency of Tax Administration (SUNAT) of Intendency Resolution 1501–150032 regarding its review of the tax notes required by the Tax Court for years 1996 to 1999. The total amount of the new tax note is about US$160 million, mainly arising from: (i) non-recognition of the revaluation of Edegel S.A.’s fixed assets and, consequently, non-deduction of their respective depreciation, (ii) non-deduction of interest and exchange rate difference on loans related to the purchase of Lajas Holding’s shares, since they are not associated with generation of taxable income and (iii) capitalization of overheads associated with fixed assets (“taxes on expenses”). On August 1 2003, the company filed an appeal in the Tax Court, whose decision to date is still pending. It has to be mentioned that management estimated and recorded a provision for contingencies of about US$16.5 million at December 31 2003 (about US$16.1 million at December 31 2002) for all those items mentioned in the resolution referred to in the previous paragraph and appealed in the tax court, which, in the opinion of its tax advisors, has very little chance of success (points (ii) and (iii) above). Edegel S.A. i. Edegel / SUNAT From November 2000 to October 2001, tax authorities reviewed the Subsidiary’s income tax and general sales tax (IGV) for the period from 1995 to 1999. As a result of that review, in December 2001 the National Superintendency of Tax Administration (SUNAT) notified the subsidiary of its comments via several Resolutions of Assessments and Fines regarding Income Tax and IGV for the periods under review. From the items mentioned, the amount not accepted and not paid by the subsidiary mainly concerns the Tax Administration’s desire to apply Final Temporary Provision Seven of Law 27034 and, therefore, to disregard, as of 1999, the subsidiary’s right to a tax allowance for the depreciation from the increased value attributed as a result of the revaluation of its assets resulting from the purchase of the subsidiary 1995, pursuant to Law 26283, even though the subsidiary has a Legal Stability Agreement that has stabilized its income tax system until the year 2005, as has been mentioned in Note 8(a). The total estimated amount claimed is about Th$61,550,412 (MUS$84,804). On February 11 2002, the subsidiary commenced an arbitration proceeding against the State of Peru, represented by CONITE, according to the provisions of clause eight of the Legal Stability Agreement. On April 22 2002, the Arbitration Court issued it arbitration award whereby it declared that the subsidiary’s complaints regarding the inapplicability of Final Temporary Provision Seven of Law 27034 were well-founded, pursuant to the Legal Stability Agreement signed with the State of Peru. Therefore, the Arbitration Court recognized the subsidiary’s right to deduct the depreciation from the increased value assigned by revaluations made in previous years, from the income tax base. In spite of the award, the litigious tax proceeding continued, so, on July 12 2002, the subsidiary filed an appeal in the Tax Court against the resolutions of assessment and fines regarding income tax (years 1996, 1997, 1998 and 1999). On April 28 2003 the company filed rectifying tax returns of its sworn annual income tax returns for years 2000 and 2001 – pending inspection and review – adopting the criterion of the most recent Intendency Resolution regarding the interests and exchange rate difference on loans linked to the purchase of Lajas Holding’s shares and the tax on expenses and SUNAT’s original criterion regarding the economic life of the assets. As a result, it made an additional payment of S/21,196,000 (equivalent to US$6,056,000 and Ch$3,600 million) charging it to the provision referred to in the previous paragraph. 171 Similarly, on November 14 2003 the company presented a partial discontinuance of the appeal filed in the Tax Court against the aforementioned Intendency Resolution, in order to avail itself of the Special System for Updating and Paying Tax Debts – SEAP – approved by Statutory Decree 914, accepting all the objections made by SUNAT except for the objection due to non-recognition of the depreciation of the revaluation excess by applying Clause Eight of the Tax Code and the objection for non- deduction of expenses related to the Olympic project. The amount paid was about US$ 14,290,000, which settled all unpaid tax in the years 1996 to 1999, charging it to the provision for contingencies referred to above. The Company’s management and its external legal advisors are of the opinion that the result of this dispute will be favorable to the Company. Furthermore, the sworn annual tax return for the year 2002 (submitted on April 2 2003) and the calculation of income tax accrued in 2003 have already taken SUNAT’S criteria regarding tax on expenses and on interest and exchange rate difference on loans linked to the purchase of Lajas Holding’s shares and SUNAT’S original criterion regarding the economic life of the assets when determining taxable income, so the Company’s Management and its legal advisors are of the opinion that the result of the review of 2000 to 2003 will not result in additional liabilities for the Company at December 31 2003. ii. Lawsuits filed by ESSALUD for payment of contributions of Statutory Decrees 22482, 19990 and 18846 amounting to THCh$3,055,250 (US$4.21 million). Management and its legal advisors are of the opinion that a favorable consolidated financial statements decision will probably be obtained for the Subsidiary, so no liabilities have been recorded for these items at December 31 2003 and 2002. On December 26 2003, the judge granted a stay to the appeal for reconsideration of judgment filed by CELG, accepting the offer of collateral made by CELG. iii. Resolutions of Assessment and Fine for ThCh$421,687 (MUS$581) issued against Talleres Moyopampa S.A., against which the subsidiary has filed the respective complaints and appeals since it was formed by the division of the above company. These complaints and appeals, are pending a final decision by the Tax Administration. Management and its external legal advisors are of the opinion that these actions, individually or collectively, will not have any significant negative effect on the Company’s financial position or its operating results or its liquidity, since it is clear from the terms of the agreement signed with Electrolima and the State of Peru that Electrolima is the company bound to pay the taxes. iv. Lawsuit filed by the Subsidiary’s workers union petitioning that the percentage of participation in the profits, which the Law stipulates as 5 percent, should be increased to 10 percent, thereby doubling the payment in this regard in 1994, 1995 and 1996 by about ThCh$3,387,291 (ThUS$4,667). The appealable judgment was pronounced on August 24 2000, declaring that the lawsuit was unfounded. In a decision dated December 12 2000 (notified on November 13 2001), the Second Division of Lima’s Supreme Court voided the appealable judgment which declared the lawsuit unfounded. The subsidiary filed an appeal for annulment against that decision, which was not admitted, so the case will return to the Court for a new ruling. Management and its external legal advisors are of the opinion that the final decision will be favorable to the subsidiary and no liabilities for these items have been recorded at December 31 2003 and 2002. 172 Central Cachoeira Dourada S.A. In April 2003, Companhia Elétrica do Estado de Goiás S.A. (“CELG”), the sole customers the Company’s Brazilian subsidiary, Cachoeira Dourada, obtained an interim order that allowed CELG to suspend payments in respect to a firm contract for long-term purchase of energy it has with Cachoeira Dourada. On July 4, 2003, the Court presiding over this dispute determined that CELG had to make payments to Cachoeira Dourada until the final resolution of the litigation with price ranges inferior to those of R$61.63 per MWh, amounts included in the current purchase contract. Cachoeira Dourada has decided to appeal this decision. On July 23, 2003, the Regional Federal Court of the 1st Region has decided in favor of Cachoeira Dourada finding that CELG must pay the entire amount owed. On July 29, 2003, the ruling was reconsidered and the previous decision was maintained which compels CELG to pay R$31.00 per MWh to CDSA; this is currently in force. On August 18, 2003, the Judge approved the holding of a settlement hearing between CDSA and CELG on September 04, 2003, but no agreement was reached. A technical evaluation has been ruled on that is in progress. On December 19 2003, a temporary measure was granted to determine that CELG should admit into the proceeding the difference between the value paid to CDSA and the value stipulated in the contract. On December 23 2003, CELG filed an appeal for reconsideration of judgment. Compañía de Interconección Energética (CIEN) In January 2003, Companhia Paranaense de Energía – COPEL (“Copel”) suspended its payments to Companhia de Interconexão Energética (CIEN), in respect of the firm contract for purchase of energy and power, which was signed in 1999. In addition CIEN sells energy to another three Brazilian companies. Copel cited the economic and financial imbalance of the 1999 contracts as the reason for its violation. In addition Copel has requested a review of the previously agreed upon prices. On August 18, 2003, CIEN and COPEL reached an agreement and signed a “Memorandum of Understanding” that reflects the renegotiation of Agreements 001/99 and 002/99. Said agreement will be the basis for the contractual additions to be signed, and essentially determines the following: (i) a reduction in the Agreements signed that modifies the agreed amounts from 400 MW to 200 MW each; (ii) a term of seven (7) years for the additions, starting on January 1, 2003, and ending on December 31, 2009; (iii) CIEN’s taking on the portion that refers to the CUST for the introduction of energy in the basic network up to the center of gravity; (iv) the reference annual payment flow, which will be paid in monthly portions of the payable invoices; and (v) new conditions for price adjustment. The Memorandum of Understanding establishes that the Commercialization Agreement signed by the parties on December 13, 1999, should be canceled by mutual settlement. In December 2003 supplementary or additional agreements between investee Cien and Brazilian company COPEL, pursuant to which the original contracts between both companies were amended, were signed. As a direct result of the signing of these additional agreements, 203 million reales were immediately paid to Cien by COPEL. Emgesa S.A. Environmental contingency – Group action against Emgesa S.A. E.S.P., Empresa de Energía de Bogotá S.A. E.S.P. and CAR for alleged material and moral damages caused by the environmental damage that occurred in the Muña reservoir. The plaintiff’s initial claim is for ThCh$890,700,000. The Company’s Management and its legal advisors consider that, if the decision goes against the company, the maximum amount of the claim would be ThCh$35,564,000, which should be assumed by the three entities being sued. However, the Company’s legal advisor considers this contingency to be remote. Enersis S.A. and its subsidiaries are defendants or plaintiffs in other minor lawsuits with probable or reasonably possible risk of loss, but whose individual effects, if the decision is unfavorable, are not significant in these consolidated financial statements. Restrictions: Enersis S.A. The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level: Enersis / 2003 annual report • Enersis’s ratio between debt and cash flow for four quarters and that Pangue S.A. of its Chilean subsidiaries did not exceed 8.75x; • The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 5.0x; • The ratio of Enersis and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.25x; • The ratio of consolidated debt to shareholders’ equity plus minority interest not exceeding 80%; • Assets corresponding to companies whose business is regulated, is not to be less than 50% of the total consolidated assets. • Minimum shareholders’ equity at least equal to ThCh$ 456,840,000 (U.F.27 million) As of December 31, 2003 all these obligations have been met. The following is a summary of the main obligations, which Empresa Eléctrica Pangue S.A. must comply with as per agreements with financial institutions. • Maintain creditors duly informed regarding its financial situation. • Different conditions with the objective of guaranteeing a healthy financial situation. Thus, the institutions have defined certain indexes such as restrictions for the payment of dividends and indebtedness, and acceleration clauses. In regard to the long-term debt limit for loans in cash, for these events, the limit is 2.0 times shareholders’ equity. Insure and maintain insured all assets. • Chilectra S.A. As of December 31, 2003 all these obligations have been met. The Company did not have any management restrictions or financial Central Costanera S.A. covenants during the years ended December 31, 2002 and 2003. 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 2003, in order to ensure its supply and corresponding cost. Endesa S.A. On a consolidated level, Endesa must comply with financial covenants and requirements derived from loan agreements with financial institutions, among which are the following: • Endesa’s ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 9.5x; • The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 6.75x; • The ratio of Endesa Chile and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.5x; • The ratio of consolidated debt to shareholders’ equity plus minority interest not exceeding 115%; • Assets corresponding to companies whose business is regulated, is In virtue of the arrangement in Annex VI-A of the “Concurso Público Internacional para la Venta de las Acciones de Central Costanera Sociedad Anónima” (International Public Tender for the Sale of shares of Central Costanera Sociedad Anonima), the domain of Central Costanera S.A.’s land was transferred subject to the condition that it used as the location for an electric power plant for a term of twenty five years as of the date of possession. If under any circumstance whatsoever the land ceases to be used for than purpose during the indicated year, its domain shall be considered revoked due to this cause, and return of such title will be effective immediately, and as a matter of law, to SEGBA S.A. or, as applicable, to the National State. 173 The most demanding requirements in respect to financial coefficients are those contained in the Syndicated loan, the Agent of which is Bank of America, and in the bilateral with JP Morgan, which are the following: • The long-term debt with third parties cannot exceed US$347 million; the debt with a maximum of 30 days cannot exceed US$10 million. • Clauses that restrict change of Control; • Clauses restrict payments that to shareholders, including not to be less than 50% of the total consolidated assets. subordination of the related debt. • Minimum shareholders’ equity at least equal to ThCh$ 761,400,000 (U.F.45 million) Edegel S.A. As of December 31, 2003 all these obligations have been met. Financial indicators originated by credit contracts, Bonds Program and Short-term instruments: 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 ThCh$160,740,000 (UF9,500,000). As of December 31, 2003 all these obligations have been met. • Net Shareholders’ Equity must not be less than Soles 2,400 million, inflation-indexed. • Debt ratio no greater than 1.5 • EBITDA/twelve month interest expense no less than 4.5 to 1.5 • Financial Debt no greater than 3.0 to 1.0. • Net Liabilities (Liabilities-Cash) no greater than 0.55 to 1.0. consolidated financial statements Hidroeléctrica Betania S.A. Covenants include limitations on the payment of related debt and limitations on change in control and the following financial ratios: • EBITDA/Senior Financial Debt no less than 1.4 • Cash Flows before Dividend Payments/Senior Financial Debt no less than 1.3 • Shareholders’ Equity/Senior Debt no less than 5. Other restrictions i. 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 relevant subsidiaries, if not corrected in time (as to those specific provisions allowing a year of time to correct the problem), might result in the cross-failure at the Endesa-Chile and Enersis S.A. level., and, in this case, significant percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. There are no longer debt covenants that specify the acceleration of maturities, if the Company’s risk-rating falls below investment-grade. The syndicated loan signed during May 2003 specifies that cash obtained from the sale of Company assets, capital increases, new debt issuances, and at least 75% of excess annual cash is to be used to pre-pay the syndicated loan. At December 31, 2002 and 2003, these obligations and restrictions have been fully met. ii. Endesa Chile has Compañía Eléctrica Tarapacá S.A., Pangue S.A., Endesa Chile Internacional S.A. and Pehuenche S.A. as joint sureties through joint securities and debts for the full amounts owed from the syndicated loan, in other words, ThUS$742,857. 31. sureties obtained from third parties Enersis S.A. Endesa S.A. The Company has received certificates of deposit for ThCh$228,082 at December 31 2003 (ThCh$256,000 in 2002). 174 Chilectra S.A. The Company has received performance bonds from contractors and third parties to guarantee jobs and construction (mainly the Ralco Project), for ThCh$19,465,542 as of December 31, 2003 (ThCh$25,047,366 in 2002). The Company presents among its current liabilities, deposits received in cash for the use of temporary connections by customers of the company for ThCh$45,378 and ThCh$48,129 at December 31, 2002 and 2003, respectively. San Isidro S.A. Documents in guarantee received for ThCh$1,389,669 as of December 31, 2003 (ThCh$4,723,754 in 2002). Inmobiliaria Manso de Velasco Ltda. Compañía Eléctrica de Tarapacá S.A. The Company has received guarantees from third parties to guarantee obligations incurred in the acquisition of assets of ThCh$3,084,700 as of December 31, 2003. The Company has received documents in guarantee for ThCh$287,026 as of December 31, 2003 (ThCh$289,896 in 2002). Compañía Americana de Multiservicios Ltda.. The Company has delivered bank bonds for ThCh$855,496 (ThCh$742,219 in 2002) and has received bank bonds for ThCh$2,090,246 (ThCh$1,526,984 in 2002). Pangue S.A. The Company has received documents in guarantee for ThCh$9,827 as of December 31, 2003 (ThCh$ 8,968 in 2002). Enersis / 2003 annual report 32. foreign currencies As of December 31, 2002 and 2003, 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 Amounts due from related companies Inventories, net Income taxes recoverable Prepaid expenses and other Deferred income taxes Other current assets Currency $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales US$ $ Col. Soles $ Arg. Reales $ no Reaj. US$ $ Col. $ Arg. $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales U.C. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales 2002 ThCh$ 5,788,827 2,160,583 46,450 329 12,523,238 1,286,336 4,511,726 22,349,238 75,905,747 31,897,980 4,905,424 9,507,348 24,866,664 4,870 1,276,716 277,137 - 6,671,078 106,088,706 6,806,024 80,422,109 36,122,348 42,594,258 184,723,598 - 2,146,369 1,119,350 25,278 1,891,665 58,223 11,961,868 3,447,244 14,525,588 10,566,901 1,269,043 20,403,806 1,171,184 1,918,671 186,040,780 173,464 504,558 4,569,218 4,146,132 35,710,977 8,953,589 12,659,809 1,977,870 1,684,235 27,797,051 478,455 231,921 10,850,700 15,622,209 937,491 2,595,712 125,461 558,892 484,120 3,041,002 20,359,733 1,162,684 7,504,259 13,931,972 700,230 43,563,049 38,528,887 897,084 404,514 3,031,489 46,216,571 As of December 31, 2003 ThCh$ 4,366,271 1,026,270 - - 7,929,796 1,020,537 4,122,947 7,904,411 146,982,431 63,307,495 1,748,487 4,410,142 39,806,051 4,871 2,830,725 231,125 8,089,020 1,046,341 101,858,793 6,775,774 84,202,512 28,841,723 43,692,757 200,752,465 4,517,969 1,300,807 632,141 22,796 1,888,914 39,902,763 9,696,238 1,302,969 19,761,136 5,246,655 953,696 16,323,724 1,007,085 5,680,924 3,250,576 34,433 126,193 5,153,416 2,814,583 28,788,239 4,333,120 9,048,884 1,607,923 530,028 34,170,548 588,720 743,820 4,690,838 21,092,412 1,097,393 1,494,553 213,159 246,320 777,746 12,623,323 34,416,516 3,319,951 9,123,931 22,599,374 798,303 45,432,597 10,626,857 - 1,366,258 2,207,110 13,497,657 175 Total current assets 1,226,686,042 1,146,003,542 consolidated financial statements b. Property, plant and equipment Account Land Building, infrastructure and work in progress Machinery and equipment Other plant and equipment Technical appraisal Accumulated depreciation Currency $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles Reales $ no Reaj. $ Col. Soles $ Arg. Reales As of December 31, 2002 ThCh$ 41,866,427 34,478,422 10,312,312 10,039,567 34,507,107 3,788,311,757 3,291,744,168 1,188,708,130 1,660,123,728 1,809,638,780 55,812,812 15,630,227 461,991,240 788,901,749 675,806,060 120,590,946 4,140,014 60,548,176 163,453,511 191,476,826 31,777,948 74,140,072 511,049,848 136,684,807 (1,591,311,321) (716,220,943) (984,492,558) (1,225,841,949) (665,615,098) 2003 ThCh$ 40,758,597 28,423,186 8,459,010 8,214,593 29,598,398 3,451,715,480 2,697,689,287 997,026,075 1,389,142,982 1,518,362,373 52,033,499 21,958,804 379,000,445 649,667,638 659,576,270 124,216,778 9,241,536 35,393,490 119,315,444 59,922,446 28,879,432 60,656,670 418,108,337 111,826,791 (1,563,199,720) (673,389,749) (838,391,706) (946,081,154) (781,764,722) Total property, plant and equipment 9,978,252,765 8,096,360,510 176 c. Other assets Account Investments in related companies Investments in other companies Goodwill, net Negative goodwill, net Long-term accounts receivable Amounts due from related companies Other assets As of December 31, Currency $ no Reaj. US$ Euro $ Arg. $ no Reaj. $ Col. Soles Reales $ no Reaj. US$ $ Col. $ no Reaj. US$ $ Col. Soles $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales U.C. $ no Reaj. US$ Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales 2002 ThCh$ 114,086,546 81,494,725 484,792 39,736 2,244,620 158,725,075 12,394 79,373 797,946,141 7,044,625 50,997,868 (143,085) (617,459) (28,928,256) (66,435,880) 1,537,677 2,069,969 7,209,126 6,617,950 1,762,125 2,119,167 104,670,530 1,122,474 890,930 - 16,219 2,991,117 93,804,042 23,322,875 39,084,349 4,660,955 8,988,891 115,021,202 2003 ThCh$ 105,437,088 74,731,322 - 43,061 2,284,059 131,045,129 8,235 122,874 737,589,708 5,374,677 37,432,833 (16,666,302) (13,188,948) (4,560,106) (44,819,276) 3,490,210 1,906,343 4,548,181 7,623,915 2,051,708 2,443,258 105,871,429 - 594,249 128,354,145 155,439 5,293,263 62,381,600 20,721,449 24,755,128 3,461,991 16,164,285 85,731,968 Total other assets 1,532,920,813 1,490,382,915 Enersis / 2003 annual report d. Total assets Account Total assets by currency Total assets by currency e. Current liabilities Currency 2002 2003 As of December 31, $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales U.C. 11,958,325 3,714,225,344 436,334,935 531,242 329 3,081,845,735 1,255,357,445 1,494,149,709 2,741,162,898 2,293,658 55,048,849 3,294,744,008 395,463,122 - - 2,524,798,080 1,008,687,186 1,323,762,429 2,129,236,208 1,007,085 12,737,859,620 10,732,746,967 Account Currency Within 90 days 91 day to 1 year As of December 31, 2002 Amount ThCh$ Average Rate As of December 31, 2003 Amount ThCh$ Average Rate As of December 31, 2002 Amount ThCh$ Average Rate As of December 31, 2003 Amount ThCh$ Average Rate 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 Dividends payable Accounts payable $ no Reaj. US$ Euro $ Col. Soles $ Arg. Reales Others $ Reaj. US$ Euro Yen $ Col. $ Arg. Reales U.P. Libra Others $ Reaj. Soles $ Reaj. US$ Euro $ Col. Soles US$ $ Arg. $ no Reaj. $ Col. Soles $ Arg. Reales Others $ no Reaj. US$ Euro $ Col. Soles $ Arg. Reales Others 61,450,630 114,803,536 4,588,211 7,678,923 37,562,298 16,417,063 8,833,410 - 316,182 210,008,448 - 39,583,181 - 1,379,521 2,158,075 - - - 123,350 5,659,198 - 3,303,376 - - 1,173,050 30,053,579 - 432,729 8,368,039 18,714 - - 734,541 54,805,509 12,466,164 - 27,445,681 24,026,113 27,218,931 60,255,618 11,073,624 2.48% 8.14% 4.38% 14.35% 8.68% 6.00% 9.24% - 8.73% 3.24% - 2.08% - 22.75% 11.23% - - - 10.00% 4.50% - 7.06% - - 7.28% 9.00% - - - - - - - - - - - - - - - 2,378,878 82,745,591 3,500,552 114,491,527 27,764,763 10,259,883 234,126 15,825,350 1,443,405 21,833,533 - 13,180,928 960,741 - 3,760,739 - - 921,390 - - 230,102 4,372,803 - 6,820,980 6,621,600 7,977,202 - 982,140 2 80,106 731 1,379,089 - 64,751,606 840,065 152,918 28,253,765 16,936,632 28,381,438 76,127,463 - 2.99% 12.71% 5.00% 15.93% 15.93% 15.93% 15.93% 15.93% 4.56% 4.96% - 3.46% 16.79% - 16.79% - - 16.79% - - 5.88% 7.87% - 11.25% 4.94% - - - - - - - - - - - - - - - - 2,369,665 113,740,116 - 44,136,355 14,671,059 3,048,487 - - 1,440,442 335,908,087 4,719,782 7,016,400 - 662,488 5,206,028 1,207,721 461,251 1,246,967 - 7,538,861 16,161,340 154,776,512 306,778,275 13,636,984 7,656,820 11,991,624 - 982,146 - - - 4,163,576 - 5,870,198 1,134,906 - - - - - - 2.48% 8.14% - 14.75% 4.07% 6.00% - - 8.73% 3.24% 3.79% 2.08% - 1.75% 11.23% 5.32% 4.81% 8.53% - 4.50% 5.80% 7.06% 3.34% 13.70% 13.70% 9.00% - - - - - - - 9.00% - - - - - - - - 43,574,065 - - 11,381,827 - - - 34,596,897 80,419,472 123,767 424,533 - - 5,601,259 1,117,055 412,346 898,948 - - 7,359,819 36,966,398 - - 8,573,491 13,456,661 - 716,480 - - - - - - 340 - - - - - - - 12.71% - - 15.93% - - - 4.56% 4.96% 3.00% 3.46% - - 16.79% 16.79% 16.79% 16.79% - - 5.88% 7.87% - - 4.94% - - - - - - - - - - - - - - - - 177 consolidated financial statements e. Current liabilities (continuation) Account Currency Within 90 days 91 day to 1 year As of December 31, 2002 Amount ThCh$ Average Rate As of December 31, 2003 Amount ThCh$ Average Rate As of December 31, 2002 Amount ThCh$ Average Rate As of December 31, 2003 Amount ThCh$ Average Rate Short-term notes payables Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings 178 Income tax payable Deferred income Other current liabilities Total current liabilities by currency $ no Reaj. Reales $ no Reaj. US$ $ Col. Soles $ Arg. Reales Others $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales Others $ no Reaj. $ Col. Soles $ Arg. Reales Others $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles Reales $ Arg. U.P. Libra Others - 16.89% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 577 1,067,230 9,336,767 8,310,295 22,774,897 5,897,275 3,085 6,841,564 379,511 11,580,352 537,944 1,246,715 1,238,934 866,000 978,624 - 14,295 12,517,102 102,588 13,411,977 2,338,800 2,155,138 23,945,150 81,796 7,199,028 1,891,296 5,164,141 10,935,836 29,405,859 2,581 542,553 20,111,038 690 3,366,238 1,122,010 5,874,167 417,793 3,350 460,762 15,262,624 2,016,785 50,647 16,034,314 20,484,347 12,037,529 153,157,768 395,557,325 4,588,211 39,583,181 105,355,363 82,756,926 154,113,263 78,488,750 - - 12,272,053 18,350 21,051,531 5,268,913 6,708,584 10,741,843 8,605,921 2,520 7,027,596 - - 249,137 1,429,194 2,851,852 385,358 1,690,491 24,142,261 29,361 7,019,432 1,024 5,573,186 1,528,330 2,867,494 5,372,542 - 7,830,494 2,210,532 5,030,010 16,852,919 31,621,088 - 16,411,961 22,933,978 19,326 - 3,365,633 5,978,448 4,072,490 9,992 10,652 9,151,633 1,460,594 44,555 20,848,457 29,827,087 1,712,860 110,900,011 135,059,629 3,653,470 13,180,928 200,371,490 67,016,601 203,909,155 80,903,933 - - 16,746,740 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16.89% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,813,598 421,043 8,735,432 - 11,451,858 - - - - - - - - - - 8,456 28,863,812 90,138 - 2,250,372 - - - 1,441,876 - - - - - - - 2,664,820 - - 2,884,571 - 5,827 5,527,866 290,853 - - - - 17,616,065 48,361,177 626,667,668 311,498,057 7,016,400 57,773,339 46,233,790 13,183,202 3,710,975 1,207,721 461,251 1,246,967 - - 5,498,770 62,349 - - - - - - - - - - - - 82,808 28,676,767 67,877 - 2,474,566 - 10,837 - 157,420 - - - - - - 2,175,016 2,934,142 - - 1,924,436 - 5,935 2,796,045 1,205,885 - - - - 42,045,459 39,769,918 175,753,047 123,767 424,533 2,175,016 25,364,026 5,612,096 - 1,117,055 412,346 898,948 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total current liabilities 1,037,910,369 833,454,817 1,134,976,612 293,696,211 Enersis / 2003 annual report f. Long-term liabilities as of December 31, 2003 (g) Long-term liabilities as of December 31, 2002 Account Currency 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Amount ThCh$ Average Rate Amount ThCh$ Average Rate Amount ThCh$ Average Rate Amount ThCh$ Average Rate Due to banks and financial institutions Bonds payable Long-term notes payable Miscellaneous payable Amounts payable to related companies Accrued expenses Deferred income taxes Other long-term liabilities Total long-term liabilities by currency $ Reaj. US$ Euro Yen $ Arg. $ Col. Reales Pound $ Reaj. US$ $ Col. Soles US$ Reales $ Reaj. $ no Reaj. US$ Reales $ Col. $ no Reaj. US$ $ Col. Reales $ no Reaj. $ Col. Soles Reales $ Reaj. $ no Reaj. US$ Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales Pound 3,090,540 200,556,323 121,738 422,438 3,595,794 - 80,660,736 402,154 6,110,308 118,760,000 102,995,204 74,596,769 40,470,881 11,328,176 - 863,350 5,226,699 8,480,593 84,320 2,450,592 - 20,701,649 226,924,205 10,455,989 - 2,626,425 1,773,652 9,200 3,455,877 12,779,861 2,058,195 7,972,337 23,241,894 9,210,048 17,225,808 377,793,764 121,738 422,438 123,781,173 79,281,389 11,568,131 352,409,256 402,154 9.00% 4.77% 3.00% 0.89% 1.75% - 22.50% 4.63% 5.88% 7.91% 10.50% 4.39% 7.42% 14.46% - - - - - - - - - - - - - - - - - - - 1,273,686 437,964,229 - - 1,797,897 37,403,850 4,768,381 - 110,427,387 213,768,000 - 10,155,885 48,220,374 4,581,768 - - - 3,145,337 - 2,609,663 2,971,683 45,091,420 - 6,904,019 1,639,845 1,348,653 - 11,512 974,342 5,155,183 698,247 - - 111,712,585 10,488,024 708,079,469 - - 84,135,115 12,202,785 1,797,897 12,495,486 - 9.00% 3.83% - - 1.75% 12.55% 20.81% - 5.88% 7.91% - 4.39% 7.42% 14.46% - - - - - - - - - - - - - - - - - - - - 44,109,592 - - 6,292,887 - 8,442,383 - 101,832,395 475,040,000 - 838,813 31,840,790 8,901,177 - - - - - 6,235,668 - - - - - - - 6,415 1,142,803 - 1,189,040 - - 101,838,810 7,378,471 550,990,382 - - - 2,027,853 6,292,887 17,343,560 - - 3.36% - - 1.75% - 20.06% - 5.88% 7.91% - 4.39% 7.42% 14.46% - - - - - - - - - - - - - - - - - - - - 2,473,322 - - - - 518,910 - 94,971,517 989,798,688 - - - - 163,434 17,574 8,905,744 - - 10,432,103 - - - - - - - - 1,641,711 - - - - 95,134,951 12,091,388 1,001,177,754 - - - - - 518,910 - - 3.89% - - - - 17.74% - 5.88% 7.91% - - - - - - 3.26% - - - - - - - - - - - - - - - - 179 Total long-term liabilities 972,215,899 940,911,361 685,871,963 1,108,923,003 consolidated financial statements g. Long-term liabilities as of December 31, 2002 Account Due to banks and financial institutions Bonds payable Long-term notes payable Miscellaneous payable Amounts payable to related companies Accrued expenses Deferred income taxes 180 Other long-term liabilities Currency $ Reaj. US$ Euro Yen $ Arg. Reales U.P. Libra $ Reaj. US$ $ Col. Soles US$ Reales $ Reaj. $ no Reaj. US$ Reales $ Reaj. $ Reaj. $ no Reaj. US$ $ Col. Reales $ no Reaj. $ Col. Soles $ Arg. $ Reaj. $ no Reaj. US$ Soles $ Arg. Reales 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Amount ThCh$ Average Rate Amount ThCh$ Average Rate Amount ThCh$ Average Rate Amount ThCh$ Average Rate 54,237,250 1,345,934,070 248,420 9,070,915 3,723,918 82,481,803 1,201,425 886,725 - 341,124,167 - 54,055,768 44,904,268 36,859,991 - 2,151,638 7,215,480 2,610,107 998,174,521 - 3,531,357 3,769,628 - 26,142,431 6,801,356 - - 199,151 10,913 4,306,898 38,401,268 4,657,394 7,531,040 13,518,788 3.66% 3.19% 4.13% 1.96% 1.75% 17.11% 5.32% 4.81% - 7.00% - 7.19% 7.50% 9.50% - - - - 3.33% - - - - - - - - - - 4.55% - - - - 2,966,355 104,732,270 - - 1,861,959 1,628,960 - - 101,469,367 355,640,089 33,505,610 3,898,572 42,289,050 4,647,622 - - - - - 57,854 3,288,636 - - 82,397,881 3,782,966 - 1,236,961 132,767 10,115 14,948,249 - 259,501 115,184 - 3.66% 3.19% - - 1.75% 11.23% - - 6.20% 8.06% 14.35% 7.19% 7.50% 9.50% - - - - - - - - - - - - - - - 4.55% - - - - - 71,457,319 - - 6,504,433 14,696,907 - - 69,556,117 290,318,440 78,759,079 1,010,395 60,063,668 8,787,084 - - 10,640,919 - - - 7,684,362 - - 2,120,404 14,137,664 - - 597,452 472,290 4,730,059 - 2,235,811 - - - 3.19% - - 1.75% 11.23% - - 6.00% 8.50% 14.35% 7.19% 7.50% 9.50% - - 9.48% - - - - - - - - - - - - - - - - - - 6,415,711 - - - 203,617 - - 160,924,499 628,561,921 - - - 249,604 163,399 51,051 - - - - 7,525,626 - 68,363,088 49,604,846 22,328,589 3,624,671 - - - 13,818,110 - - - - - 3.19% - - - 11.23% - - 6.00% 8.06% - - - 9.50% - - - - - - - - - - - - - - - 4.55% - - - - Total long-term liabilities by currency $ Reaj. 1,052,422,684 104,503,691 70,028,407 161,087,898 $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales U.P. Libra 16,791,249 1,781,348,881 248,420 9,070,915 - 58,713,162 11,454,109 161,613,120 1,201,425 886,725 22,019,851 502,661,409 - - 33,505,610 5,395,034 2,109,910 88,674,463 - - 26,552,085 432,480,346 - - 78,759,079 3,246,206 7,101,885 25,604,395 - - 43,723,376 634,977,632 - - 71,987,759 - - 50,058,067 - - Total long-term liabilities 3,093,750,690 758,869,968 643,772,403 961,834,732 Enersis / 2003 annual report 33. sanctions Endesa S.A. The Company and its directors has not been the subject to sanctions by the SVS nor by any other administrative authorities. During the year from January 1 to December 31, 2003, the Company and its subsidiaries have made disbursements for a value of ThCh$12,145,906, which mainly corresponds to: 34. environment Chilectra S.A. The Company has made disbursements during the year of ThCh$1,561,001, mainly for the following items: Investments: • Audit El Salto 220 KV Line • La Cisterna Environmental Impact Statement • Santa Elena Environmental Impact Statement • San Bernardo Environmental Impact Statement • Chena Maipú Environmental Impact Statement • Construction of oil retaining pits • TAP Chacabuco reafforestation construction • Multipurpose Pipelines Expenses: • High Voltage Network Maintenance Unit • Southern Maintenance Center • Northern Maintenance Center • Eastern Maintenance Center Operating expenses: corresponding to studies, follow-up procedures and laboratory analysis (ThCh$379,802 expenses in 2003), Environment Law N°99 (Colombia) and ISO 14,001 certification in Central Costanera and El Chocón ThCh$5,846,734 (US$9,846,302). Investments related to the following projects: • Central Ralco’s environmental program. • Implementation of environmental management system (S.G.A.) and its ISO 14.001 certification in San Isidro, Central Tarapacá, Central Rapel, Pehuenche, Loma Alta and Curillinque Power Stations. • Construction of transformer pools Rapel Power Station, Sauzal and Los Molles. • Pangue Power Station – Restoration of former ore deposit camp Works on Muña reservoir (Emgesa) 35. subsequent events No significant events that might affect these financial statements have occurred in the period from January 1 2004 to their date of issue. 181 JUAN CARLOS WIECZOREK C. General Account MARIO VALCARCE DURAN Chief Executive Officer consolidated financial statements appendix U.S. GAAP Differences Between Chilean and United States Generally Accepted Accounting Principles Restatements of U.S. GAAP Consolidated Net Income, Shareholders’ Equity, Balance Sheet, and Statement of Cash Flows 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. i. 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. In addition to the restatement of its 2001 Chilean GAAP Statement of Cash Flows as described in Note 2, the Company also made certain adjustments to its previously -reported consolidated shareholders’ equity as of December 31, 2002 and consolidated net income (loss) for the years ended December 31, 2002 and 2001, that only had an impact on the Company’s previously reported U.S. GAAP amounts. The total impact of these adjustments on consolidated shareholders’ equity as of December 31, 2002 and consolidated net income (loss) the years ended December 31, 2002 and 2001 under U.S. GAAP are presented below. Restatements of ThCh$4,212,536 relating to periods prior to January 1, 2001 were recorded as a reduction of opening retained earnings as of January 1, 2001: Year ended December 31, Net income (loss) in accordance with US GAAP as previously reported Price level restatement as of December 31, 2003 Subtotal 182 Effect of restatements on previously-reported US GAAP net income (loss): Goodwill - Codensa Minority interest impact of above restatement Net income (loss) in accordance with US GAAP as restated Basic and diluted earnings (loss) per share as previously reported Basic and diluted earnings (loss) per share as restated 2001 ThCh$ 3,088,583 30,886 3,119,469 (1,107,905) 853,973 2,865,537 0.38 0.35 2002 ThCh$ (329,910,417) (3,299,104) (333,209,521) (333,209,521) (40.19) (40.19) Shareholders’ equity in accordance with US GAAP, as previously reported Price level restatement as of December 31, 2003 Subtotal Effect of restatements on previously-reported US GAAP net income (loss): Goodwill - Codensa Minority interest impact of above restatement Shareholders’ equity in accordance with US GAAP, as restated As of December 31, 2001 ThCh$ 1,154,673,833 11,546,738 1,166,220,571 17,271,396 (13,312,792) 1,170,179,175 Enersis / 2003 annual report The following is a description of the adjustments that only had an impact on net income (loss) and shareholders’ equity determined in accordance with U.S. GAAP: Goodwill – Codensa Under Chilean GAAP, when we initially recorded the purchase of our interest in Codensa in 1997, the Company recognized a deferred balance, “Reorganization expenses - Codensa”, and an Allowance for Doubtful Accounts in the opening balance sheet related to certain receivables that the Company and the acquiree agreed had previously been overvalued. Our deferred expenses under Chilean GAAP are disclosed in Note 14, Other Assets. Under U.S. GAAP, this amount should have been recognized as goodwill and not a separate deferred balance. Further, this deferred balance was incorrectly expensed as reorganization expenses in 1999. Under U.S. GAAP, we have restated our previous results to include this balance in goodwill. This adjustment reflects the effect of the capitalization of the goodwill and the subsequent amortization recognized. Under U.S. GAAP, prior to the adoption of SFAS No. 142 effective January 1, 2002, goodwill was capitalized and amortized over a period not exceeding 40 years. After the adoption of SFAS No. 142, goodwill is no longer amortized, but tested for impairment at least annually. ii. As described above (and Note 2), the Company made certain adjustments to its 2001 Chilean GAAP Statement of Cash Flows. The effect of the restatements on the U.S. GAAP 2001 Statement of Cash Flows is set forth in the table below: US GAAP Cash flow provided by (used in) Operating Activities Financing Activities As previously reported Price level restatement as of December 31, 2003 Subtotal Interest payments Settlement of forward exchange contracts Subtotal As restated ThCh$ 662,920,609 6,629,206 669,549,815 (85,953,318) (17,470,297) (103,423,615) 566,126,200 ThCh$ (61,414,127) (614,141) (62,028,268) 85,953,315 17,470,297 103,423,612 41,395,344 iii. In addition, as discussed in Note 19, Bonds Payable, the holders of our Series 3 Yankee Bonds had the option to require redemption of the bonds in December of 2003. The Company has made adjustments to its previously reported U.S. GAAP current and long-term liabilities to classify these bonds as current as of December 31, 2002. The effect of the restatements on the U.S. GAAP balance sheet as of December 31, 2002, is set forth in the table below: 183 US GAAP liabilities: As previously reported Price level restatement as of December 31, 2003 Subtotal Restatement to current As restated Current ThCh$ 2,122,819,104 21,228,191 2,144,047,295 108,869,415 2,252,916,710 Long-term ThCh$ 5,347,252,501 53,472,525 5,400,725,026 (108,869,415) 5,291,855,611 a. Inflation accounting b. Reversal of revaluation of property, plant and equipment The cumulative inflation rate in Chile as measured by the Consumer Price Index for the three-year period ended December 31, 2003 was approximately 7.25%. 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 Item 17 c (iv) of 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. 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 (gg) below. consolidated financial statements 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 of part of 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 (gg) below. d. Intangibles Under Chilean GAAP, the Company has recorded intangible assets (consisting mainly of rights of way) 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 have been recorded at the Predecessor Company’s carrying values which was zero. The estimated aggregated amortization expense to be reversed for US GAAP purposes for each of the five succeeding fiscal years to be as follows: 184 Year 2004 2005 2005 2007 2008 Amortization ThCh$ 5,722,698 5,248,917 4,173,231 2,160,654 1,775,204 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 (gg) below. f. Severance indemnity The effects of adjusting shareholders’ equity for this intangible asset net of accumulated amortization, inclusive of accumulated price-level restatement, and net income for the annual amortization expense are included in paragraph (gg) 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 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 calculated based on the present value of the liability determined at each year-end based on the current salary, average service life of each employee and discounted at an interest rate determined every three years. The Company and certain of its subsidiaries used a discount rate of 9.5% for the years ended December 31, 2002 and 2003, and assumed an average service life which varies based upon years of service with the Company. 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 at the actuarial present value as of the balance sheet of all benefits attributed by the severance indemnity benefit formula to employee service rendered prior to the balance sheet. The projected benefit obligation Enersis / 2003 annual report is measured using assumptions as to future compensation levels. For U.S. GAAP purpose the discount rate has to be reassessed every year, to the relevant discount rate for the period between the date and the expected date of payment. Consequently, the discount rates to be applied for each of the years should have been 8.1% of 2001 and 6.5% for 2002. In practice, the Company believes that the salary progression rate will not differ significantly from the general inflation rate. In 2003 the Company for US GAAP purposes used 6.5% discount rate in according with the above guidance the impact of using the appropriate discount rates under US GAAP for 2001 and 2002 would have not resulting a material difference than the rate use in accordance with Chilean GAAP. paragraph (gg) below. The principal U.S. GAAP adjustments affecting the Company’s equity investees are as follows: (a) Reversal of complementary accounts (asset or liability) recorded as a transitional provision as of January 1, 2000. (b) Organizational costs deferred under Chilean GAAP that, under U.S. GAAP, should have been included in income. (c) For the year beginning January 1, 2001, the recording of derivative instruments in accordance with SFAS No. 133. The Company recognizes actuarial gains and losses immediately for (d) The deferred income tax effects of adjustments (b) and (c). Severance indemnity plans for both Chilean GAAP and U.S. GAAP. The effects of accounting for severance indemnity benefits under US GAAP have been presented in paragraph (gg). g. Pension and post-retirement benefits The Company has obligations related to post-retirement benefits as stipulated in collective bargaining agreements and pension obligations as stipulated by contract for its subsidiares in Brazil, Colombia and Chile under U.S. GAAP, post-retirement benefits are accounted for under SFAS 106 and pension obligations are accounted for under SFAS 87 which results in the following differences: • In 2000, the Company recorded its obligation for post-retirement benefits at our consolidated subsidiaries, Cerj and Coelce under Chilean GAAP. Technical Bulletin 8 allows the Company to record a transition asset for post-retirement benefits and pension obligations, as calculated under Chilean GAAP, and to amortize the amount, on a straight-line basis, for up to five years. The Company is amortizing this amount over a period of three years. Cerj and Coelce had adopted U.S. GAAP for external reporting purposes prior to 2000 and there was no remaining unamortized transition obligation. Therefore, the amortization that is appropriately being recorded under Chilean GAAP for the transition asset related to post-retirement benefits and pensions is reversed in our reconciliation to U.S. GAAP. • Under both Chilean GAAP and US GAAP, actuarial gains/losses are deferred over the average remaining service period when the cumulative amount of deferred actuarial gains and losses exceeds 10% of the higher of the projected benefit obligation or fair value of plan assets. • Chilean GAAP recognizes an additional minimum liability, similar to that defined under SFAS 87, through the income statement. Under US GAAP if the amount of the additional minimum liability required to be recognized exceeds the unrecognized prior service costs, the excess shall be reported as a separate component within other comprehensive income net of any tax benefits, if no excess exists the additional minimum liability is recognized an intangible asset is recognized in respect of the prior service cost not get recognize. The effects of accounting for post-retirement benefits under US GAAP have been presented in paragraph (gg). 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 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 discontinued 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 (gg) below. 185 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$238,798,904 net minority interest, to write-off all amounts of goodwill and negative goodwill. In accordance with U.S. GAAP, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets”, (SFAS No. 142) as of January 1, 2002. SFAS 142 applies to all goodwill and intangible assets acquired in a business combination. Under the new standard, all goodwill, including that acquired before initial application of the standard, and indefinite-lived intangible assets are not amortized, as of the effective date but must be tested for impairment at least annually. The transitional impairment test required by the standard consolidated financial statements was performed and no adjustment for impairment was required. However, based on subsequent testing of the Company’s investments in Argentina and Brazil performed as of December 31, 2002, it was determined that these investments were impaired. The following net effects are included in the net income (loss) and shareholders’ equity reconciliation to U.S. GAAP under paragraph (gg) below: (a) the reversal of goodwill amortization related to reporting units that were not found to be impaired under U.S. GAAP for the year ended December 31, 2002, and adjustment of goodwill amortization which is different in amount because of goodwill basis differences in 2001. (b) the adjustment to record the reversal of the impairment recorded under Chilean GAAP during 2002, which is different in amount because of goodwill basis differences, (c) the adjustment to record the impairment under US GAAP from investment in Argentina and Brazil. The adjustment as of each year are as follows: Adjustment of goodwill amortization Reversal of impairment record under Chilean GAAP Impaiment of goodwill under US GAAP 2001 ThCh$ (2,218,785) As of December 31, 2002 ThCh$ 54,467,593 456,940,020 (606,383,813) 2003 ThCh$ 51,133,050 Totals (2,218,785) (94,976,200) 51,133,050 Had we adopted SFAS No 142 effective January 1, 2001 and accordingly not amortized goodwill for the years ended December 31, 2001 our net gain (loss) and basic income (loss) per share should have been as follows: 186 2001 ThCh$ 2002 ThCh$ 2003 ThCh$ Net income (loss) in accordance with U.S. GAAP before cumulative effect of change in accounting principle (18,359,658) (333,209,521) 29,268,881 Goodwill amortization under US GAAP add back (83,600,896) - - Adjusted net income (loss) in accordance with U.S. GAAP before cumulative effect of change in accounting principle 65,241,238 (333,209,521) 29,268,881 Basic earnings per share: Net income (loss) in accordance with U.S. GAAP before effect of discontinued operations, and cumulative effect of change in accounting principle Goodwill amortization under US GAAP add back Adjusted net income (loss) in accordance with U.S. GAAP before effect cumulative effect of change in accounting principle 2001 Ch$ 2002 Ch$ 2003 Ch$ (2.21) (10.08) (40.19) - 7.87 (40.19) 1.45 - 1.45 Enersis / 2003 annual report (ii) The company has considered important factors, which could trigger an impairment review, such as 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 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, 2001, 2002, and 2003, 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 amounts 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 did not meet the U.S. GAAP impairment criteria for long-lived assets under SFAS No. 144 described above, and updated amortization period under the Circular No. 1.358 are included in paragraph (gg) 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. The Company has optioned for not capitalizing indirect interest cost under Chilean GAAP. debt directly related to a project to the extent that interest cost would have been available if the project had not been done. 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 (gg) 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 (gg) 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 was made in the reconciliation in paragraph (gg) below to reflect the unrecorded dividend liability for 2001. 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. 187 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 (gg). 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, 2001, 2002 and 2003, this requirement had not been met. The net effect of eliminating the accrued liability recognized under Chile GAAP is presented in paragraph (gg) below. p. Adjustment in selling price of investment Under U.S. GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with Under Chilean GAAP, pursuant to the share transaction contract entered into in 1995 between Endesa-Chile and Endesa Overseas Co. with Enersis consolidated financial statements 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 was eliminated after the impairment charge recorded in 2002. The effects of the adjustments to conform to U.S. GAAP are included under paragraph (gg) below. q. Elimination of capitalized interest in Brazil 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 with credit against interest expense. 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 (gg) 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 (gg) below. 188 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 (loss) included in income that is attributable to operations in unstable countries because these amounts have been remeasured into US dollars was ThCh$23,479,750, ThCh$181,846,422 and ThCh$(67,511,676) for the years ended December 31, 2001, 2002 and 2003, respectively (See Note 24). Company’s Management believes that, 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 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 Item 17 b (iv) of 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 asset 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 amortized over the life of the contract as interest expense. However, contracts not designated or ineffective 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 (gg) 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 designated for 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 Enersis / 2003 annual report Accounting Principles Board Opinion No. 20, “Accounting Changes.” SFAS No. 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. 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 US dollar. This risk is partially 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$21,225,196 net of deferred taxes for ThCh$47,041,680 and minority interest for ThCh$63,247,656, 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 on December 31, 2001 is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (gg) 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 (gg) below. v. Effects on US GAAP of sale of subsidiary Río Maipo The adjustment of the net gain obtained from the sale of the subsidiary Compañía Eléctrica del Río Maipo S.A results from the reversal of the accumulated US GAAP adjustment at December 31, 2002. As explained in Note 11d) this subsidiary was sold in April 2003. The reversal of these adjustment increased by ThCh$489,353 the gain obtained from the sale of this subsidiary. 189 The operating income generated by Río Maipo until disposal date amounted to ThCh$2,759,358 (sales amounted to ThCh$14,462,630 less cost of sales amounted to ThCh$10,817,530 and administrative and selling expenses amounted to ThCh$885,742) was reclassified from Non- operating income to Operating Income in accordance with US GAAP (see Note 37 II (k)). The sales of subsidiaries Infraestructura 2000 and Canutillar Plan did not provide for any US GAAP difference adjustment. 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 assets were recorded at their fair market value, with a corresponding credit recognized as income in 2000. Under U.S. GAAP, the amount was deferred and amortize over the life of the related service contract. This adjustment reverses the gain under Chile GAAP and records the amortization of the deferred income recognized under U.S. GAAP. The effect on shareholders’ equity and net income for the years presented is included in (gg) below. 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, consolidated financial statements 190 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 (Coelce), 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 remaining costs will be recovered over a period estimated of three years, from the balance date. 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 (gg) 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 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 was recorded as goodwill. The effect on shareholders’ equity is included in (gg) 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, 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. The effect of these adjustments is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (gg) 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. meets the conditions for being classified as a discontinued operation, 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 Enersis / 2003 annual report involvement in the operations of Infraestructura 2000 S.A. after its sale. 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 meet the criteria to be classified as a discontinued operations as 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 (gg) below. bb. Effects of minority interest on the U.S. GAAP adjustments The net income and shareholders’ equity under Chilean GAAP is adjusted at the U.S. GAAP footnote for the impact of the U.S. GAAP reconciling items on the allocation of income and loss to minority interests. The effect of this adjustments is included in net income and shareholders’ equity reconciliation to US GAAP under paragraph (gg) below. The sum of this adjustment and the minority interest reflected in our consolidated income statement and balance sheet for each period presented under Chilean GAAP represents the allocation of our results and shareholders’ equity to our minority shareholders under U.S. GAAP. cc. Extraordinary Items In 2002, the Company incurred a Chilean GAAP extraordinary charge in accordance with Decree No. 1,949 of the Republic of Colombia for a tax that will be used for Colombia’s democratic security, as disclosed in Note 27 Extraordinary Items. Under U.S. GAAP, this charge is classified as income tax expense in accordance with SFAS 109, Accounting for Income Taxes (SFAS 109), as discussed in Note 37 II k) Reclassification to U.S. GAAP. dd. Negative Goodwill CERJ In January 2003, CERJ, one of our Brazilian subsidiaries approved a capital increase as a result of which our ownership interest in CERJ increases, as certain minority shareholders, including certain wholly owned subsidiaries of Endesa-Spain, Enersis ultimate parent company did not participate. Under Chile GAAP in accordance with BT. No 42 and SVS Circular 368 the company recognized the value of the discount between the amount contributed and the underlying net book in the company was recognized as a negative goodwill, to be amortized over a 20 year period. In accordance the appropriate guidance, Enersis is allowed to fully amortized into income the amount of any negative goodwill, if during the first year subsequent to the capital increase the amount of the losses incurred by the subsidiary is in excess the amount of negative goodwill. During 2003, CERJ incurred losses in excess of the negative would recognized consequently Enersis fully amortized into income the negative goodwill originally recognized. Under US GAAP, the transaction would be considered a transaction between entities under common control in which the minority interest did not participate, consequently similar to the guidance in FTB No. 85-5, Issues Relating to Accounting for Business Combinations the transaction is accounted for as a recovery from the minority interest.. Consequently the amount of the discount under book value is accounted for directly as an increase of consolidated equity. ee. Extinguishment of debt In March 2003, certain bondholders were granted an option to exchange between November 1, and 15 2003 their bonds in exchange for shares of the Company at a fixed price of Ch 60.4202. Under Chile GAAP the transaction was accounted for as an exchange of debt for equity with the difference between the carrying amount of the debt and the strike price of the conversion recognized directly in equity a share premium. Under US GAAP the transaction should be recognized as an extinguishment of debt in accordance with APB No. 14, using as reacquisition price of the extinguished debt the value of the common issued or the value of the debt—whichever is more clearly evident, as Enersis stock is publicly trade the fair value of the shares is being considered to be more clearly evident. The average conversion price during November 2003, the conversion period was Ch 78 per share. The effects in net income and shareholders’ equity of the US GAAP adjustment are presented in note (gg) below. ff. Asset retirement obligations Under Chilean GAAP, there is no requirement to record obligations associated with the retirement of tangible long-lived assets. Under U.S. GAAP, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” effective January 1, 2003. Previously, the Company had not been recognizing amounts related to asset retirement obligations under U.S. GAAP. SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation in the period of its inception. For the Company, such liabilities primarily relate to assets. The liability is recorded at its net present value with a corresponding increase in the carrying value of the related long-lived asset. The liability is accreted each period, representing the time value of money, and the capitalized cost is depreciated over the remaining useful life of the related asset. 191 As SFAS No. 143 required retrospective application to the inception of the liability, the effects of the adoption reflect the accretion and depreciation from the liability inception date through December 31, 2002. The cumulative effect of the change in accounting principle on prior years resulted in a charge to income of ThCh$280,490 (net of income taxes and minority interest of ThCh$150,612) (Ch$0.03 per share) during the year ended December 31, 2003. The effect of the adoption of SFAS No. 143 on the year ended December 31, 2003 was to decrease net income in accordance with U.S. GAAP before the cumulative effect of the change in accounting principle by ThCh$25,719 (net of income taxes and minority interest of ThCh$12,760) (Ch$0.001 per share). The effects of this U.S. GAAP adjustment on net income and shareholders’ equity are presented in note (gg) below. In Peru, where we have eight hydroelectric plants and one thermoelectric plant, existing legislation includes the requirement for entities with electrical assets to conduct retirement activities when operations cease. In Chile, under certain concession decrees governing four distribution lines, we are similarly required to conduct retirement activities upon cessation of operations. The effects in net income of the US GAAP adjustment are presented gg. Effect of conforming to U.S. GAAP in note (gg) below The reconciliation of reported net income required to conform with U.S. GAAP is as follows: consolidated financial statements Net income (loss) in accordance with Chilean GAAP 42,575,573 (225,985,568) 12,467,863 Reversal of amortization of revaluation of property, plant and equipment (paragraph b) 1,918,777 3,370,176 1,612,891 2001 ThCh$ As of December 31, 2002 ThCh$ 2003 ThCh$ 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 goodwill (paragraph i) Amortization of negative goodwill (paragraph j) Capitalized interest (paragraph k) Depreciation capitalized interest (paragraph k) Difference foreign exchange capitalized (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 operating income (paragraph t) Derivative instruments non operating income (paragraph t) Fair value of long-term debt assumed (paragraph u) Sale of subsidiaries (paragraph v) Deferred income (paragraph w) Regulated assets (paragraph x) 192 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 (paragraph bb) Effects of minority interest on the U.S. GAAP adjustments (paragraph bb) Deferred tax effects on the U.S. GAAP adjustments Extinguishment of debt (paragraph ee) Reversal amortization of negative goodwill Cerj. (paragraph dd) Staff severance indemnities (paragraph f) Asset retirement cost - (paragraph ff) Asset retirement obligations - liabilities (paragraph ff) (5,510,241) 123,058 (21,360,619) 23,361,327 21,069,544 (94,976,200) (2,405,077) 123,058 9,181,675 11,856,234 27,398,946 51,138,178 - - (1,863,883) 192,945 (28,905,022) 3,776,020 (18,300,848) (1,110,880) (1,107,905) (27,172,670) 19,854,278 (1,167,465) (13,750,019) (415,483) (128,237) (8,885) (77,193) 597,394 3,999,877 60,004,530 5,837,022 (175,971) (83,137,442) (25,528,504) 2,454,240 (9,780,446) (5,888,817) 1,978,009 (350,560) 4,536,226 912,401 5,418,734 (51,878,218) (26,978,871) (92,475) - - 167,073 (42,322,272) (362,123) (4,245,704) 853,973 (17,309,814) - - - - - 277,577 (51,750,311) (322,979) (896,113) (150,103) 128,905,670 - 78,804,214 - - - - - (13,332,392) 10,363,942 (3,012,696) 29,339,287 (1,302,667) (2,252,144) 11,876 - 520,763 3,486,794 (163,699,107) 24,344,422 (64,682) 489,353 119,722 57,517,976 (264,242) 896,113 (296,070) 21,771,883 - 5,559,569 (17,703,656) (34,517,091) 174,385 (1,453) (43,389) Net income (loss) in accordance with U.S. GAAP before effect of discontinued operations, and cumulative effect of change in accounting principle (18,646,912) (333,376,291) 29,480,264 Income from discontinued operations net of taxes and minority interest (paragraph aa) 287,254 166,770 69,107 Net income (loss) in accordance with U.S. GAAP before effect of cumulative effect of change in accounting principle (18,359,658) (333,209,521) 29,549,371 Cumulative effect of change in accounting principle, net of the tax and minority interest 21,225,195 - (280,490) Net income (loss) in accordance with U.S. GAAP 2,865,537 (333,209,521) 29,268,881 Other comprehensive income (loss): Cumulative translation adjustment determined under Chilean GAAP net of taxes and minority 19,653,919 20,802,883 (73,020,068) Cumulative translation adjustment related to U.S GAAP adjustments net of taxes and minority interest (3,007,132) (12,276,027) 51,171,555 Comprehensive income (loss) in accordance with U.S.GAAP 19,512,324 (324,682,665) 7,420,368 Enersis / 2003 annual report The reconciliation to conform shareholders’ equity amounts to U.S. GAAP is as follows: As of December 31, 2002 ThCh$ 2003 ThCh$ Shareholders’ equity in accordance with Chilean GAAP 1,015,636,097 2,548,391,890 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) Intangibles (paragraph d) Deferred income taxes (paragraph e) Pension and post-retirement benefits assets long term (paragraph g) Pension and post-retirement benefits liabilities long term (paragraph g) Investments in related companies (paragraph h and paragraph z) Goodwill (paragraph i) Goodwill (paragraph i) Goodwill gross amount (paragraph i) Negative goodwill (paragraph j) Capitalized interest (paragraph k) Exchange diference (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 (paragraph bb) Effects of minority interest on the U.S. GAAP adjustments (paragraph bb) Elimination of result of discontinuing operations Deferred tax effects on the U.S. GAAP adjustments Staff severance indemnities (paragraph f) Asset retirement cost (paragraph ff) Asset retirement obligations - liabilities (paragraph ff) Shareholders’ equity in accordance with U.S. GAAP The changes in shareholders’ equity in U.S. GAAP as of each year-end are as follows: Shareholders equity in accordance with U.S. GAAP - January 1 Reversal of minimum dividend payable as of previous balance sheet date (m) Negative goodwill Cerj (paragraph dd) Extinguishment of debt (paragraph ee) Cumulative translation adjustment Capital increase Net income (loss) in accordance with U.S. GAAP for the year Shareholders equity in accordance with U.S.GAAP-December 31 consolidated financial statements (14,292,454) (12,160,106) (3,095,667) (1,107,525) (280,732,850) (16,516,169) (13,311,718) 4,329,102 234,348,121 18,954,776 4,410,196 (301,274,313) 62,343,128 (45,234,295) (7,821,500) (984,467) (241,904,311) - (12,691,906) 30,940,961 280,623,341 15,662,663 4,410,196 (395,338,766) 60,073,352 (14,447,201) - - (25,932,290) 93,627 (26,295,885) 88,476 - - (9,455,672) (38,058,571) 151,399,321 1,278,540 6,130,801 (896,113) (3,471,483) (98,077,436) 227,423,329 (14,610,341) 732,011 (2,742,970) - - - 193 (7,215,264) (27,650,297) (24,918,299) 1,213,858 4,751,588 - (2,720,428) (22,722,716) 233,609,202 (12,072,781) - 141,986,835 174,385 62,696 (524,556) 858,269,182 2,512,520,960 2002 ThCh$ As restated 1,170,179,175 12,772,672 - - 8,526,856 - (333,209,521) 858,269,182 2003 ThCh$ 858,269,182 - 34,517,091 17,703,656 (21,848,513) 1,594,610,663 29,268,881 2,512,520,960 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, 2002 and 2003, respectively: Goodwill Less: accumulated amortization Goodwill, net Negative goodwill Less: accumulated amortization Negative goodwill, net 2002 ThCh$ 1,247,825,338 (391,836,704) 855,988,634 (346,245,075) 250,120,396 (96,124,680) 2003 ThCh$ 1,682,402,179 (902,004,961) 780,397,218 (446,721,526) 367,486,894 (79,234,632) b. Basis and diluted earnings per share: For the year ended December 31, Chilean GAAP (loss) earnings per share U.S. GAAP (loss) earnings per share: 194 U.S. GAAP (loss) earnings per share before effect of discontinued operations and cumulative effect of change in accounting principle Discontinued operations (net of tax) U.S. GAAP (loss) earnings per share before effect of cumulative effect of change in accounting principle Cumulative effect of change in accounting principle (net of tax) Basic and diluted U.S. GAAP (loss) earnings per share Total number of common outstanding shares at December 31, Weighted average number of common shares outstanding (000’s) 2001 Ch$ 5.13 (2.24) 0.03 (2.21) 2.56 0.35 8,291,020 8,291,020 2002 Ch$ (27.26) (40.21) 0.02 (40.19) - (40.19) 8,291,020 8,291,020 2003 Ch$ 0.61 1.44 0.003 1.44 (0.01) 1.43 32,651,166 20,471,093 (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 contingent equity securities. Consequently, there are no potentially dilutive effects on the earnings per share of the Company. Enersis / 2003 annual report 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$ 2001 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (1) (14,215,006) (45,655,129) (8,294,461) (22,887,411) (31,814,033) (72,499) (122,938,539) Deferred income taxes as determined under Chilean GAAP (6,123,588) (2,421,935) (13,305,356) 13,814,973 (174,193) - (8,210,099) Total income tax provision under Chilean GAAP (20,338,594) (48,077,064) (21,599,817) (9,072,438) (31,988,226) (72,499) (131,148,638) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 (1,004,780) (23,621,204) (696,907) (3,416,340) (165,791) Deferred tax effect of adjustments to U.S. GAAP 3,126,564 (3,063,845) 784,668 6,442,004 (24,599,205) Deferred tax effect of comulative effect of change in accounting principle Total U.S. GAAP adjustments: US GAAP reclassifications (2) 1,859,794 (41,945,155) 3,981,578 (68,630,204) (216,491) (128,730) 205,276 (6,945,105) 3,230,940 (31,710,101) 8,197,975 - - - (28,905,022) (17,309,814) (47,041,681) (93,256,517) 8,197,975 Total Income tax provision under U.S. GAAP (16,357,016) (116,707,268) (21,728,547) 2,356,477 (63,698,327) (72,499) (216,207,180) 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 (13,425,130) 62,744 (12,787,952) (2,628,912) (45,700,626) Deferred income taxes as determined under Chilean GAAP (3,246,886) 34,416,658 (30,625,633) 5,938,454 1,320,128 Total income tax provision under Chilean GAAP (16,672,016) 34,479,402 (43,413,585) 3,309,542 (44,380,498) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 (2,321,768) 30,730,636 (21,703,800) (24,542,702) (3,522,985) Deferred tax effect of adjustments to U.S. GAAP 13,349,961 (13,924,852) 21,801,269 20,567,000 37,010,836 Total U.S. GAAP adjustments: US GAAP reclassifications (2) 11,028,193 16,805,784 97,469 (3,975,702) 33,487,851 296,480 6,155,018 (22,599,396) - - - - - - (74,479,876) 7,802,721 (66,677,155) (21,360,619) 78,804,214 57,443,595 (16,147,898) 195 Total Income tax provision under U.S. GAAP (5,347,343) 51,285,186 (43,316,116) 5,488,858 (33,492,043) - (25,381,458) Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2003 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Income tax provision under Chilean GAAP Current income taxes as determined under Chilean GAAP (28,348,929) - (14,649,203) (8,938,095) (48,816,949) Deferred income taxes as determined under Chilean GAAP 23,735,924 20,598,165 (15,627,624) 29,871,477 604,518 Total income tax provision under Chilean GAAP (4,613,005) 20,598,165 (30,276,827) 20,933,382 (48,212,431) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 5,697,010 (1,890,566) 5,323,258 51,973 - Deferred tax effect of adjustments to U.S. GAAP (4,667,672) 57,850,670 (18,544,339) (26,290,516) (2,788,575) U.S. GAAP reclassifications (2) Total U.S. GAAP adjustments: 97,540 - - 4,983,047 - 1,126,878 55,960,104 (13,221,081) (21,255,496) (2,788,575) - - - - - - - (100,753,176) 59,182,460 (41,570,716) 9,181,675 5,559,568 5,080,587 19,821,830 Total Income tax provision under U.S. GAAP (3,486,127) 76,558,269 (43,497,908) (322,114) (51,001,006) - (21,748,886) The income tax provisions under Chilean GAAP for the years ended December 31, 2001 are stated net of income tax recovery of ThCh$8,116,807. (1) (2) US GAAP reclassifications are tax related expenses under Chilean GAAP are classified as non-operating expenses, but under US GAAP would be classified as income taxes. consolidated financial statements Deferred tax assets (liabilities) as of balance sheet dates are summarized s follows: SFAS No. 109 Applied to Chilean GAAP Balances ThCh$ 2002 SFAS No. 109 applied to U.S. GAAP Adjustments Total Deferred Taxes under SFAS No. 109 ThCh$ ThCh$ SFAS No. 109 Applied to Chilean GAAP Balances ThCh$ 2003 SFAS No. 109 applied to U.S. GAAP Adjustments Total Deferred Taxes under SFAS No. 109 ThCh$ ThCh$ 6,092,340 13,976,184 20,068,524 6,886,897 3,471,272 10,358,169 - - 33,346,329 22,369,938 32,539,943 6,834,095 2,773,552 3,285,278 2,682,607 590,842 5,301 1,223,410 1,643,609 117,632,905 51,441,049 118,204 3,966,075 5,207,034 (3,483,390) - - - 1,180,304 - - 9,088,367 419,419 - 10,959,331 - - - 5,639,274 - - - 33,346,329 22,369,938 32,539,943 6,834,095 3,953,856 3,285,278 2,682,607 9,679,209 424,720 1,223,410 12,602,940 117,632,905 51,441,049 118,204 9,605,349 5,207,034 (3,483,390) - - 28,445,827 12,350,395 6,854,533 10,253,712 3,252,026 305,207 - 769,811 3,226,745 140,743,998 52,914,563 - - 3,642,557 (2,619,849) - - 7,725,723 9,515,638 - - 924,944 - - 4,281,408 - - 5,418,377 - - - 1,574,341 - (1,026,722) 135,981 7,725,723 9,515,638 28,445,827 12,350,395 7,779,477 10,253,712 3,252,026 4,586,615 - 769,811 8,645,122 140,743,998 52,914,563 - 1,574,341 3,642,557 (3,646,571) 135,981 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 Others 196 Total deferred income tax assets 232,552,854 96,979,146 329,532,000 267,026,422 32,020,962 299,047,384 Deferred income tax liabilities Property, plant and equipment Severance indemnities Regulated assets 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 463,864,534 5,281,301 469,145,835 378,897,544 (131,867,382) 247,030,162 822,383 3,866,280 2,324,725 13,893,414 - - - - - 70,442,401 1,890,351 8,052,280 4,912,067 200,624 1,097,152 2,926,769 3,921,901 - - - - - - - - 1,043 21,105,052 530,557 13,905,137 - - 2,362,805 822,383 3,866,280 2,324,725 13,893,414 70,442,401 1,890,351 8,052,280 4,912,067 200,624 1,097,152 2,926,769 3,921,901 21,105,052 531,600 13,905,137 2,362,805 948,245 15,451,651 - 10,638,763 965,095 1,855,600 7,980,878 4,550,251 - 3,716,538 2,725,964 5,906,694 - - 3,007,781 - - 29,646 - - - 311,282 - - - - - - - 19,462,302 1,325,219 - 773,060 977,891 15,451,651 - 10,638,763 1,276,377 1,855,600 7,980,878 4,550,251 - 3,716,538 2,725,964 5,906,694 19,462,302 1,325,219 3,007,781 773,060 - - Differences between the financial and tax value of Río Maipo S.A. 1,489,974 - 1,489,974 Total deferred income tax liabilities 523,168,634 99,722,116 622,890,750 436,645,004 (109,965,873) 326,679,131 Net deferred assets (liabilities) (290,615,780) (2,742,970) (293,358,750) (169,618,582) 141,986,835 (27,631,747) (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 / 2003 annual report 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$ 2001 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Total ThCh$ Statutory Chilean tax Effect of higher foreign tax rates (35,559,239) (33,377,079) (8,345,121) 757,531 (19,963,764) 32,899,600 (63,588,072) - (64,286,128) (16,626,493) (1,657,047) (30,400,164) 6,625,823 (106,344,009) Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items (2) Prior years income tax Effect of Chilean tax rate increase Other US GAAP reclassifications (1) (10,939,483) 476,112 477,541 1,166,548 (15,126,317) - (23,945,598) 20,057,025 (13,024,156) (4,736,306) - (39,525,423) (37,324,479) 24,413,911 (20,534,132) (2,006,509) (8,294,744) (4,027,977) 7,649,848 (405,301) - - (95,619) 319,665 2,185,396 - - 726,865 - - - - - 14,038,115 257,284 (8,517,972) 1,065,053 (72,499) 8,197,975 12,576,157 (226,414) (8,294,744) 2,742,004 8,197,975 Tax expense at effective tax rate (16,357,016) (116,707,268) (21,728,547) 2,356,477 (63,698,327) (72,499) (216,207,180) Statutory Chilean tax Effect of higher foreign tax rates (3) Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes Non-taxable items Non-deductible items (2) Prior years income tax Other US GAAP reclassifications (1) Chile ThCh$ 67,168,315 (430,542) Argentina ThCh$ Perú ThCh$ 2002 Brazil ThCh$ (167,432) (198,824) (13,114,914) (14,344,438) 74,751,569 58,337,620 Other ThCh$ Colombia ThCh$ (6,834,175) 6,969,289 Total ThCh$ 121,803,363 50,333,105 (6,897,315) 23,588,346 (571,201) (1,951,871) (13,678,525) 1,281,470 (7,906,847) (8,395,157) (44,416,218) (65,503,689) 35,639,598 (7,057,169) (88,139,584) (2,696,489) 1,434,427 296,480 330,345 (1,368,126) 1,534,889 752,324 (1,962,698) 6,155,018 (22,599,396) 201 4,098,513 514,748 489,434 (59,436,551) (120,962,331) (3,549,867) 2,089,287 (16,147,898) 197 Tax (benefit) expense at effective tax rate (5,347,343) 51,285,186 (43,316,116) 5,488,858 (33,492,043) - (25,381,458) Chile ThCh$ Argentina ThCh$ Perú ThCh$ 2003 Brazil ThCh$ Colombia ThCh$ Other ThCh$ Statutory Chilean tax (54,608,415) 28,242,985 (12,716,631) 8,189,725 (12,546,195) Effect of higher foreign tax rates (3) (1,229,007) 32,016,055 (13,090,131) 14,397,858 (16,728,261) Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes 7,796,437 (16,232,476) Non-taxable items Non-deductible items (2) Prior years income tax Other US GAAP reclassifications (1) 21,941,298 25,352,956 (1,381,708) (1,455,228) 97,540 35,741,549 (1,397,456) 5,162,000 (1,932,546) (1,160,034) 146,194 16,962,743 (2,310,618) (19,606,532) (23,875,022) (36,081,848) - (899,226) (355,686) (1,493,472) - - (925,142) 4,983,047 (2,753,639) Total ThCh$ (43,438,531) 15,366,514 (11,619,847) 78,647,556 (56,521,064) (1,737,394) (7,526,707) 5,080,587 Tax (benefit) expense at effective tax rate (3,486,127) 76,558,269 (43,497,908) (322,114) (51,001,006) - (21,748,886) (1) (2) (3) US GAAP reclassifications are tax related expenses that under Chilean GAAP are classified as non-operating expenses, but under US GAAP would be classified as income taxes. This represents mainly deductible temporary differences related to investments in subsidiaries that are permanent in nature for which deferred tax asset are not recognized. This amount represents the foreign tax rate applied certain branches opened in 2002 that are taxed outside Chile eventhough. consolidated financial statements d. Segment disclosures • Distribution - Operating Revenues The Company is primarily engaged in the distribution and generation of electricity in Chile, Argentina, Brazil, Colombia and Perú. Enersis provides these and other services through four business segments: Revenue is recognized when energy and power is provided at rates specified under contract terms or prevailing market rates. • 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: • 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 - 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. 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: 198 Enersis / 2003 annual report Sales to unaffilated customers Intersegment sales Generation Distribution 2001 Engineering services and real estate ThCh$ ThCh$ 844,506,320 2,147,389,446 211,225,793 44,142,772 ThCh$ 35,397,122 28,620,014 Corparate and other ThCh$ 62,681,681 30,868,358 Eliminations Consolidated ThCh$ ThCh$ - 3,089,974,569 (314,856,938) - Total revenues 1,055,732,113 2,191,532,218 64,017,136 93,550,039 (314,856,938) 3,089,974,569 Operating income 351,454,915 390,365,680 10,234,607 (4,590,746) 14,624,750 762,089,205 Participation in net income of affialate companies (10,458,607) (347,178) (10,805,785) Depreciation and amortization 150,676,964 262,879,718 1,253,711 57,056,905 (269,097) 471,598,201 Identifiable assets including investment in related companies 6,425,187,081 6,373,163,204 136,740,449 4,995,187,129 (5,042,880,558) 12,887,397,305 Capital expenditures (53,502,146) (290,870,798) (419,649) (176,680) 344,969,273 Sales to unaffiliated customers Intersegment sales Generation Distribution 2002 Engineering services and real estate ThCh$ 731,955,841 215,524,302 ThCh$ 1,729,173,357 50,558,319 ThCh$ 34,499,156 71,877,991 Corparate and other ThCh$ 15,103,598 43,288,180 Eliminations Consolidated ThCh$ ThCh$ 2,510,731,952 (381,248,793) Total revenues 947,480,143 1,779,731,676 106,377,147 58,391,778 (381,248,793) 2,510,731,952 Operating income 339,988,226 185,330,075 13,513,095 (112,154) (748,437) 537,970,805 199 Participation in net income of affiliate companies 8,627,162 (280,742) 8,346,420 Depreciation and amortization 223,572,979 517,672,939 1,425,329 111,930,386 12,944,753 867,546,386 Identifiable assets including investment in related companies 6,589,443,410 6,118,309,478 142,194,426 4,337,837,501 (4,449,925,195) 12,737,859,620 Capital expenditures 136,206,696 183,677,826 762,643 447,432 321,094,597 Sales to unaffiliated customers Intersegment sales Generation Distribution 2003 Engineering services and real estate ThCh$ 643,554,766 276,726,632 ThCh$ 1,591,449,768 12,397,751 ThCh$ 38,357,529 64,694,441 Corparate and other ThCh$ 10,585,159 39,029,949 Eliminations Consolidated ThCh$ ThCh$ - 2,283,947,222 (324,462,615) 68,386,158 Total revenues 920,281,398 1,603,847,519 103,051,970 49,615,108 (324,462,615) 2,352,333,380 Operating income 338,510,897 184,150,775 12,880,852 (5,078,576) 633,736 531,097,684 Participation in net income of affiliate companies 17,369,712 - - 147,084 Depreciation and amortization 167,081,095 208,174,509 1,466,036 32,329,497 - - 17,516,796 409,051,137 Identifiable assets including investment in related companies 5,465,335,840 5,206,741,058 147,442,898 3,897,847,886 (3,984,620,715) 10,732,746,967 Capital expenditures 131,139,818 126,927,756 527,549 190,525 - 258,785,648 consolidated financial statements A summary of activities by geographic area is as follows: Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 2001 Total revenues 813,163,450 835,626,392 268,144,033 698,574,698 474,465,995 3,089,974,569 Long lived assets (net) (1) 2,389,497,306 1,578,515,030 1,185,701,940 1,963,493,584 2,604,092,296 9,721,300,156 2002 Total revenues 807,456,701 300,610,346 295,351,398 630,532,907 476,780,600 2,510,731,952 Long lived assets (net) (1) 2,398,481,937 1,567,339,505 1,248,150,159 2,060,027,668 2,704,253,496 9,978,252,765 2003 Total revenues 854,422,820 292,342,045 249,728,449 550,603,624 405,236,442 2,352,333,380 Long lived assets (net) (1) 2,136,131,207 1,219,885,731 999,287,802 1,596,985,069 2,144,070,701 8,096,360,510 (1) Long-lived assets include property, plant and equipment. e. 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, 2002 and 2003. f. Schedule of debt maturity: 200 Following is a schedule of debt maturity in each of the next five years and thereafter: 2004 2005 2006 2007 2008 Thereafter Total ThCh$ 521,267,537 177,433,204 671,698,377 347,306,127 470,030,250 1,617,016,564 3,804,752,059 g. Disclosure regarding interest capitalization: Interest expense incurred Interest capitalized under Chilean GAAP Interest capitalized under U.S. GAAP 2001 ThCh$ 461,793,511 24,492,823 29,429,617 Year ended December 31, 2002 ThCh$ 450,524,679 19,662,407 23,893,073 2003 ThCh$ 420,432,628 10,479,354 15,663,609 Enersis / 2003 annual report (h) Cash flow information: (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: Year ended December 31, 2001 Restated ThCh$ 2002 ThCh$ 2003 ThCh$ Cash provided by operating activities under Chilean GAAP 566,126,200 634,060,155 574,476,970 Development stage companies 1,316,935 Cash provided by (used in) operating activities under U.S. GAAP 567,443,135 634,060,155 574,476,970 Cash provided by (used in) financing activities under Chilean GAAP (137,545,216) (287,890,263) (435,757,575) Development stage companies (995,575) Cash provided by (used in) financing activities under U.S. GAAP (138,540,791) (287,890,263) (435,757,575) Cash provided by (used in) investing activities under Chilean GAAP (329,735,425) (340,247,545) 88,375,398 Development stage companies Time deposits (1) (314,002) (10,278,615) Cash provided by (used in) investing activities under U.S. GAAP (330,049,427) (350,526,160) 88,375,398 201 (1) Time deposits with maturities longer than 90 days. (ii) Cash and cash equivalents includes all highly liquid debt instruments purchased with an original maturity of three months or less: Cash Time deposits Marketable securities Other current assets Total cash and cash equivalents under chilean GAAP Time deposits with maturities longer than 90 days Year ended December 31, 2001 ThCh$ 38,025,284 179,894,366 200,230 1,885,996 220,005,877 2002 ThCh$ 48,666,727 147,083,163 1,558,723 26,094,984 223,403,597 2003 ThCh$ 26,370,232 256,129,167 11,150,635 37,350,791 331,000,825 - 10,278,615 - Total cash and cash equivalents under US GAAP 220,005,877 233,682,212 331,000,825 consolidated financial statements (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 2001 ThCh$ 409,290,777 133,520,396 240,976 Years ended December 31, 2002 ThCh$ 460,105,547 137,777,819 2003 ThCh$ 392,987,628 396,388,375 - - i. Disclosures about fair value of financial instruments • Long-term accounts receivable The following methods and assumption were used to estimate the fair value of each class of financial instruments as of December 31, 2002 and 2003 for which it is practicable to estimate that value: 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. • Cash • Long-term debt The fair value of the Company’s cash is equal to its carrying value. The fair value of long-term debt was based on rates currently available to the Company for debt with similar terms and remaining maturities. • Time deposits The fair value of time deposits approximates carrying value due to the • Derivative instruments relatively short-term nature. • Marketable securities 202 The fair value of marketable securities is based on quoted market prices of the mutual money market funds held and approximates carrying value. 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 2001 2002 2003 Carrying amount ThCh$ 38,025,284 179,894,366 205,103 Fair Value ThCh$ 38,025,284 179,894,366 205,103 Carrying amount ThCh$ 48,666,727 147,083,163 1,558,723 Fair Value ThCh$ 48,666,727 147,083,163 1,558,723 555,751,482 555,751,482 463,428,121 463,428,121 12,138,388 66,544,701 190,574,244 102,922,598 12,138,388 66,544,701 190,574,244 102,922,598 5,182,662 63,403,857 198,259,972 127,109,018 5,182,662 63,403,857 198,259,972 127,109,018 Carrying amount ThCh$ Fair Value ThCh$ 26,370,232 26,370,232 256,254,606 256,254,606 11,155,741 467,170,365 8,362,627 94,194,266 146,163,958 127,935,044 11,155,741 467,170,365 8,362,627 94,194,266 146,163,958 127,935,044 Accounts payable and other (268,624,170) (268,624,170) (238,996,489) (238,996,489) (218,602,775) (218,602,775) Notes payable long-term debt (282,189,682) (282,189,682) (227,976,962) (227,976,962) (166,413,047) (166,413,047) (6,294,849,228) (6,253,197,087) (6,441,166,465) (6,406,158,889) (3,804,752,059) (3,934,702,914) Derivatives instruments (80,782,182) 131,689,145 129,973,402 129,973,402 (735,991) (735,991) Enersis / 2003 annual report j. 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, 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 as of December 31, 2002 and 2003. Embedded derivatives Financial derivatives Investment in related companies Derivative instruments U.S.GAAP Shareholders equity adjustment Embedded derivatives Financial derivatives Investment in related companies Derivative instruments U.S.GAAP Shareholders equity adjustment Distribution ThCh$ (11,088,082) (28,717,230) (39,805,312) - (39,805,312) Distribution ThCh$ (1,481,950) (13,418,260) (14,900,210) (14,900,210) 2003 Generation ThCh$ 208,326,850 (17,122,217) 191,204,633 7,725,718 198,930,351 2003 Generation ThCh$ (7,095,906) (2,922,182) (10,018,088) 36,864,544 26,846,456 Total ThCh$ 197,238,768 (45,839,447) 151,399,321 7,725,718 159,125,039 Total ThCh$ (8,577,856) (16,340,442) (24,918,298) 36,864,544 11,946,246 203 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) have a net settlement provision or have 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 for as derivatives that under SFAS No.133. consolidated financial statements 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. k. 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. 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: 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 may have a significant effect on the Company’s net income and shareholders’ equity. Such values are included in the reconciliation to U.S. GAAP in Note 37 paragraph (gg). 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. 204 Enersis / 2003 annual report  Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Net income before extraordinary gain Extraordinary gain Net income Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Net loss before extraordinary items Extraordinary items Net loss Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Net loss before extraordinary items Extraordinary items Net loss Chilean GAAP ThCh$ 762,089,205 (502,981,290) (138,054,415) (126,404,145) - 47,926,219 42,575,574 - 42,575,574 Chilean GAAP ThCh$ 537,970,805 (804,495,458) (66,677,155) 16,445,384 - 113,370,252 (203,386,172) (22,599,396) (225,985,568) Chilean GAAP ThCh$ 531,097,684 (449,910,509) (41,570,717) (78,324,793) - 51,176,198 12,467,863 12,467,863 2001 Reclasificattion ThCh$ (84,856,195) 111,036,253 8,197,975 - (10,805,785) (47,926,219) (24,353,971) 24,353,971 - 2002 Reclasificattion ThCh$ (447,432,384) 546,004,716 (16,147,897) - 8,346,421 (113,370,252) (22,599,396) 22,599,396 U.S. GAAP Presentation ThCh$ 677,233,009 (391,945,038) (129,856,440) (126,404,145) (10,805,785) - 18,221,602 24,353,971 42,575,574 U.S. GAAP Presentation ThCh$ 90,538,421 (258,490,742) (82,825,052) 16,445,384 8,346,421 - (225,985,568) - - (225,985,568) 2003 Reclasificattion ThCh$ 23,609,549 4,969,266 5,080,587 - 17,516,796 (51,176,198) - - U.S. GAAP Presentation ThCh$ 554,707,233 (444,941,243) (36,490,130) (78,324,793) 17,516,796 - 12,467,863 12,467,863 205 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. consolidated financial statements 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 Property, plant an equipment, net Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholder’s equity 2002 Chilean GAAP Reclassification ThCh$ ThCh$ U.S. GAAP ThCh$ 1,226,686,042 (85,538,392) 1,141,147,650 9,978,252,764 1,532,920,813 12,737,859,619 24,042,272 10,002,295,036 (24,846,332) (86,342,452) 1,508,074,481 12,651,517,167 2,172,886,981 80,029,729 2,252,916,710 5,458,227,793 (166,372,182) 5,291,855,611 4,091,108,748 1,015,636,098 - - 4,091,108,748 1,015,636,098 Total liabilities and shareholders’ equity 12,737,859,620 (86,342,453) 12,651,517,167 Current assets Property, plant an equipment, net 206 Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholder’s equity 2003 Chilean GAAP Reclassification ThCh$ ThCh$ U.S. GAAP ThCh$ 1,146,003,542 (50,015,206) 1,095,988,336 8,096,360,510 16,157,076 8,112,517,586 1,490,382,915 (18,323,797) 1,472,059,118 10,732,746,967 (52,181,927) 10,680,565,040 1,127,151,028 3,707,922,226 3,349,281,823 2,548,391,890 (11,470,682) (40,711,245) - - 1,115,680,346 3,667,210,981 3,349,281,823 2,548,391,890 Total liabilities and shareholders’ equity 10,732,746,967 (52,181,927) 10,680,565,040 l. Employee Benefit Plans Benefits for Retired Personnel 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 31,2001,2002 and 2003, and an estimated average service period based on the years of services for the Company. 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. Enersis / 2003 annual report 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. iv) Worker’s compensation benefits Employees that were entitled to Worker’s compensation insurance in prior years for work related injuries receive benefits from the Company when that insurance expires. 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 financial statement presentation. The effects of accounting for post-retirement benefits under U.S. GAAP have been presented in paragraph (gg), above. The following data represents Chile GAAP amounts presented under FAS N°132 Revised 2003 Employers’ Disclosures about Pensions and other postretirement Benefits, for Company’s post-retirement benefit plans. Followings is a schedule of estimated pay-out of pension benefits in each of the next five years: 2004 2005 2006 2007 2008 y más As of December 31, 2003 ThCh$ 19,323,700 19,169,900 19,057,500 20,742,900 227,275,400 Components of net periodic Benefits expenses Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of prior service cost Net periodic expenses Total assets of discontinued operations 305,569,400 At december 31, 2001 207 Non Contributory ThCh$ (545,019) (9,727,157) - 3,124,848 (1,108,677) (8,256,005) Pension Benefits Contributory ThCh$ (159,677) (14,103,948) 15,984,583 (7,002,042) (1,394,346) (6,675,430) Total ThCh$ (704,696) (23,831,105) 15,984,583 (3,877,194) (2,503,023) (14,931,435) Other Benefits Total ThCh$ (11,240,471) (996,389) - - (212,744) (12,449,604) consolidated financial statements Assets and obligations Accumulated benefit obligation Plan assets at fair value Unfunded accumulated benefit Changes in benefit (obligations) Benefit (obligations) at January 1 Price-level restatement Foreign exchange effect Net periodic expense Benefits paid Company contributions At december 31, 2002 Unfunfed ThCh$ Pension Benefits Funded ThCh$ (30,025,642) (150,206,029) - (30,025,642) 94,128,798 (56,077,231) Total ThCh$ (180,231,671) 94,128,798 (86,102,873) Other Benefits Total ThCh$ (33,521,901) - (33,521,901) (60,885,105) (99,016,529) (159,901,634) (18,978,461) - - - 1,298,767 6,823,162 (7,076,864) 2,530,551 - 2,883,977 (9,362,510) (6,709,096) 12,263,081 32,880,421 4,182,744 (2,539,348) (13,785,960) 14,793,632 32,880,421 - 473,409 - (19,172,729) (171,947) 4,069,724 Benefit (obligations) at December 31 (57,309,489) (67,060,656) (124,370,145) (33,780,004) Funded Status of the Plans Proyected Benefits Obligation Fair value of the plans assets Funded Status Unrecognized loss Unrecognized net prior service cost Net liability recorded under U.S. GAAP Change in the plan assets 208 Fair value of plans assets, beginning Foreign exchange effect Actual return on the plan assets Employer contributions Plan participant contributions Benefits paid Fair value of plans assets, ending Components of net periodic Benefits expenses Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of transition asset Net periodic expenses (59,352,440) (151,599,190) (210,951,630) (33,626,130) - (59,352,440) 849,966 1,192,985 94,128,797 (57,470,393) (18,160,143) 8,569,880 94,128,797 (116,822,833) (17,310,177) 9,762,865 (57,309,489) (67,060,656) (124,370,145) - (33,626,130) (13,187,275) 13,033,401 (33,780,004) - - - - - - - (53,845) (3,322,547) - (3,079,729) (620,743) (7,076,864) 87,310,089 (19,531,524) 28,344,308 13,802,233 4,151,502 (19,947,810) 94,128,798 (968,655) (10,311,252) 6,607,326 (1,001,112) (1,035,403) (6,709,096) 87,310,089 (19,531,524) 28,344,308 13,802,233 4,151,502 (19,947,810) 94,128,798 (914,810) (13,741,489) 6,607,326 (4,080,841) (1,656,146) (13,785,960) (4,451,331) (2,612,864) - (10,222,116) (1,886,418) (19,172,729) Assumptions as of December 31 Weighted - discount rate (1) Weighted - salary increase Weighted - return on plan assets (1) Weighted - long term inflation (2) (1) Includes fixed long term inflation assumption detail in (2) Pension Benefits Other Benefits Chile 9.5% 3.0% Colombia 13.5% 8.3% 3.0% 8.3% Brazil 11.3% 5.5% 11.3% 4.5% Chile 9.5% Brazil 11.3% Colombia 13.5% 3.0% 4.5% 8.3% Enersis / 2003 annual report Assets and obligations Accumulated benefit obligation Plan assets at fair value Unfunded accumulated benefit Changes in benefit (obligations) Benefit (obligations) at January 1 Price-level restatement Foreign exchange effect Net periodic expense Benefits paid Company contributions Benefit (obligations) at December 31 Funded Status of the Plans Proyected Benefits Obligation Fair value of the plans assets Funded Status Unrecognized loss (gain) Unrecognized net prior service cost Net liability recorded under U.S. GAAP Change in the plan assets Fair value of plans assets, beginning Foreign exchange effect Actual return on the plan assets Employer contributions Plan participant contributions Benefits paid Fair value of plans assets, ending Components of net periodic Benefits expenses Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of transition asset Net periodic expenses At december 31, 2003 Unfunfed Pension Benefits Funded (36,887,534) - (36,887,534) (172,849,877) 119,095,191 (53,754,686) Total (209,737,411) 119,095,191 (90,642,220) Other Benefits Total (29,592,497) - (29,592,497) (58,159,448) (67,060,656) (125,220,104) (34,854,960) 410,068 8,351,963 (11,645,290) 2,344,522 - (58,698,185) 663,967 11,531,944 (17,064,442) 10,398,385 286,269 (61,244,532) 1,074,035 19,883,907 (28,709,732) 12,742,907 286,269 (119,942,717) 262,893 4,035,814 1,417,669 49,158 (1,745,146) (30,834,572) (57,553,854) (174,368,245) (231,922,099) (30,132,395) - (57,553,854) (1,748,907) 604,576 (58,698,185) - - - - - - - (26,988) (7,446,986) - (3,556,718) (614,598) (11,645,290) 119,095,191 (55,273,055) (15,935,576) 9,964,098 (61,244,532) 94,128,798 (11,049,701) 35,619,325 9,032,029 3,827,173 (12,462,433) 119,095,191 (1,325,391) (16,247,928) 25,046,215 (22,555,598) (1,981,739) (17,064,442) 119,095,191 (112,826,909) (17,684,483) 10,568,674 (119,942,717) 94,128,798 (11,049,701) 35,619,325 9,032,029 3,827,173 (12,462,433) 119,095,191 (1,298,403) (23,748,890) 25,046,215 (26,112,316) (2,596,337) (28,709,732) - (30,132,395) (12,214,579) 11,512,402 (30,834,572) 209 740,956 229,975 - (351,347) 798,085 1,417,669 Assumptions as of December 31 Weighted - discount rate (1) Weighted - salary increase Weighted - return on plan assets (1) Weighted - long term inflation (2) (1) Includes fixed long term inflation assumption detail in (2) Pension Benefits Other Benefits Chile 9.5% 3.0% Colombia 12.8% 7.5% 3.0% 7.5% Brazil 11.3% 5.5% 11.3% 4.5% Chile 9.5% Brazil 11.3% Colombia 12.8% 3.0% 4.5% 7.5% consolidated financial statements m. 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, 2001, 2002 and 2003 (in thousands of constant Chilean pesos as of December 31, 2003). Beginning balance Credit (charge) for the period Ending balance Beginning balance 210 Credit (charge) for the period Ending balance Beginning balance Credit (charge) for the period Ending balance Chilean GAAP cumulative translation adjustment 2001 Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 9,889,646 19,653,919 29,543,565 ThCh$ 10,734,366 16,646,787 27,381,153 ThCh$ 844,720 (3,007,132) (2,162,412) 2002 Chilean GAAP Effect of U.S. GAAP Accumulated other cumulative translation adjustment adjustments on cumulative translation adjustment comprehensive income (loss) ThCh$ 29,543,565 20,802,883 50,346,448 ThCh$ 27,381,153 8,526,856 35,908,009 ThCh$ (2,162,412) (12,276,027) (14,438,439) 2003 Chilean GAAP Effect of U.S. GAAP Accumulated other cumulative translation adjustment adjustments on cumulative translation adjustment comprehensive income (loss) ThCh$ 50,346,448 (73,020,068) (22,673,620) ThCh$ (14,438,439) 51,171,555 36,733,116 ThCh$ 35,908,009 (21,848,513) 14,059,496 The Company does not recognize deferred tax assets associated to cumulative translation adjustment due to the permanent nature of the investment is associated with consequently the amounts in the table have not tax effected. (n) 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. Enersis / 2003 annual report The net sales from discontinued operations for the years 2001 and 2002 were ThCh$20,150,123 and ThCh$20,202,007, respectively. The major classes of discontinued consolidated assets, consolidated liabilities and minority interest included in the Chilean GAAP Endesa Chile consolidated Balance Sheet are as follows: Assets: Cash Account receivable, net Other current assets Property, plant and equipment, net Intangibles Other assets Total assets of discontinued operations Liabilities: Current liabilities Long term liabilities Income taxes payable (including deferred) Minority interest Total liabilities and minority interest of discontinued operations As of December 31, 2002 ThCh$ 191,966 14,917,106 35,708,670 170,181,293 34,764 18,236,278 239,270,078 74,919,888 98,127,832 843,429 736,427 174,627,576 The major classes of consolidated revenues and expenses included in the US GAAP Enersis consolidated Income Statement are as follows: 211 Sales Costs of sales Gross profit Administrative and selling expenses Operating income Non operating (loss) income Income before taxes and minority interest Income tax Minority interest Net income for the year 2001 ThCh$ 20,351,624 (10,562,356) 9,789,268 (1,304,346) 8,484,922 (7,073,841) 1,411,081 (611,188) (512,639) 287,254 2002 ThCh$ 20,404,027 (10,061,349) 10,342,678 (1,322,735) 9,019,943 (7,576,012) 1,443,931 (982,180) (294,981) 166,770 2003 ThCh$ - - - (o) Goodwill and intangible assets As discussed in Note 37 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. Subsequent to adoption 2002 of SFAS No. 142 due to change in circunstances, the Company recognized a non-cash charge of ThCh$600,380,013 to reduce the carrying value of goodwill. consolidated financial statements 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$600,380,013 goodwill impairment is associated entirely with goodwill associated with investments in Argentina and Brazil. The impairment reflects the decline in the Company’s revenues and forecasted cash flows in their Argentina and Brazilian subsidiaries and the increase in inflation and interest rates and decreasing expectations of the currencies in Argentina and Brazil. Prior to performing the review for impairment, SFAS 142 required that all goodwill deemed to be related to the entity as a whole be assigned to all of the Company’s reporting units, including the reporting units of the acquirer. A summary of the changes in the Company’s goodwill under U.S. GAAP during the year ended December 31, 2002 and 2003, by country of operation and segment is as follows: 212 By Country Chile Argentina Brazil Colombia Perú Total By Segment Generation Distribution Other Total By Country Chile Colombia Perú Total By Segment Generation Distribution Other Total January 1, 2002 ThCh$ Acquisitions ThCh$ 2002 Translation adjustment ThCh$ Impairment December 31, 2002 ThCh$ ThCh$ 1,008,326,553 3,367,279 - (1,730,261) 1,009,963,571 84,027,989 487,804,583 78,463,830 20,193,668 - - - - 6,690,514 (90,718,503) 26,130,466 (513,935,049) - - 3,758,050 1,322,608 - - 82,221,880 21,516,276 1,678,816,623 3,367,279 37,901,638 (606,383,813) 1,113,701,727 January 1, 2002 Acquisitions ThCh$ ThCh$ Goodwill Translation adjustment ThCh$ Impairment December 31, 2002 ThCh$ ThCh$ 1,051,082,728 3,304,022 11,775,309 (140,832,760) 925,329,299 626,004,310 1,729,585 - 26,126,329 (463,821,468) 188,309,171 63,257 - (1,729,585) 63,257 1,678,816,623 3,367,279 37,901,638 (606,383,813) 1,113,701,727 January 1, 2003 ThCh$ Acquisitions (sales) ThCh$ 2003 Translation adjustment ThCh$ 1,009,965,464 (10,942,944) - 73,227,440 21,516,276 - - (15,971,976) (3,912,545) 1,104,709,180 (10,942,944) (19,884,521) Impairment December 31, 2003 ThCh$ ThCh$ - - - - 999,022,520 57,255,464 17,603,731 1,073,881,715 January 1, 2003 ThCh$ Acquisitions (sales) ThCh$ 925,329,298 74,637 179,316,625 (11,017,581) Translation adjustment ThCh$ (9,224,750) (10,659,771) 63,257 - - 1,104,709,180 (10,942,944) (19,884,521) Impairment December 31, 2003 ThCh$ ThCh$ - - - - 916,179,185 157,639,273 63,257 1,073,881,715 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$34,648,290 as of December 31, 2001 and 2002, respectively. There is no difference between Chilean and U.S. GAAP in the amortization of intangible assets because all of the Company’s intangible assets are subject to amortization, since they relate to finite contracts or concessions. Enersis / 2003 annual report p. Asset retirement obligations As discussed in Note 37 paragraph (ff), the Company adopted SFAS No. 143 effective January 1, 2003. The following table describes all changes to the Company’s U.S. GAAP asset retirement obligation during the year ended December 31, 2003: Liability recognized at adoption on January 1, 2003 Liabilities incurred Liabilities settled Revisions in estimated cash flows Current translation adjustment Accretion expense Asset retirement obligation as of December 31, 2003 2003 ThCh$ 588,126 (106,959) 43,389 524,556 The pro forma effects of the application of SFAS No. 143 as if the Statement had been adopted on January 1, 2001 (rather than January 1, 2003) are as follows (on a U.S. GAAP basis): Pro forma amounts assuming the accounting change is applied retroactively net-of-tax: 2001 ThCh$ 2002 ThCh$ 2003 ThCh$ (Unaudited) (Unaudited) (Unaudited) Net income (loss) 2,827,469 (333,261,011) 29,268,881 Net income (loss) per common share – basic and diluted 2.93 (40.19) 1.43 The pro forma asset retirement obligation liability balances as if SFAS No. 143 had been adopted on January 1, 2001 (rather than January 1, 2003) are as follows (on a U.S. GAAP basis): December 31, 2002 ThCh$ 2003 ThCh$ (Unaudited) Pro forma amounts of liability for asset retirement obligation at beginning of year 443,620 588,126 Pro forma amounts of liability for asset retirement obligation at end of year 588,126 524,556 q. Recent accounting pronouncements The following new accounting standards have been adopted by the Company during the year-ended December 31, 2003 and the impact of such adoption, if applicable, has been presented in the accompanying consolidated financial statements. i. In October 2002, the EITF reached a final consensus on EITF Issue No. 02-03. Primarilly, the final consensus provided for (1) the rescission of the consensus reached on EITF Issue No. 98-10, (2) the reporting of gains and losses on all derivative instruments considered to be held for trading purposes to be shown on a net basis in the income statement, and (3) gains and losses on non-derivative energy trading contracts to be similarly presented on a gross or net basis, in connection with the guidance in EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. The Company adopted the on EITF Issue No. 02-03, as of January 1, 2003 the adoption of this consensus did not have a material impact on the Company’s consolidated results of operations, cash flows or financial position. ii. SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”In April 2003, the FASB issued SFAS No. 149, which amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities, including the qualifications for the normal purchases and normal sales exception, under SFAS No. 133. The amendment reflects decisions made by the FASB and the DIG process in connection with issues raised about the application of SFAS No. 133. Generally, the provisions of SFAS No. 149 are to be applied prospectively for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. SFAS No. 149 provisions that resulted from the DIG process that became effective in quarters beginning before June 15, 2003 continue to be applied based upon their original effective dates. The Company adopted the provisions of SFAS No. 149 on July 1, 2003. Certain modifications and changes to the applicability of the normal purchase and normal sales scope exception for contracts to deliver electricity led The Company to re-evaluate its policy for accounting for forward sales contracts. As a result, The Company elected to designate substantially all forward contracts to sell power entered into after July 1, 2003 as cash flow hedges on a prospective basis. Contracts that were being accounted for under the normal purchases and normal sales exception under SFAS No. 133 as of June 30, 2003 will continue to be accounted for under such exception, including following any modifications to these contracts, as long as the requirements for applying the normal purchases and normal sales exception are met. iii. On June 25, 2003, the FASB cleared the guidance contained in DIG Issue C20, “Scope Exceptions: Interpretation of the Meaning of ‘Not Clearly and Closely Related’ in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue C20, which applies only to the guidance in paragraph 10(b) of FASB No. 133 and not in reference to embedded derivatives, describes circumstances in which the underlying in a price adjustment clause incorporated into a contract that otherwise satisfies the requirements for the normal purchases and normal sales exception would be considered to be “not clearly and closely related to the asset being sold or purchased.” The guidance in DIG Issue C20 was effective for the Company on July 1, 2003. The Company’s review of existing contracts designated as normal purchases and normal sales under FASB No. 133 yielded no instances where an embedded price adjustment clause was not clearly and closely related to the contract’s underlying. As a result, this issue did not have a material impact on The Company’s consolidated results of operations, cash flows or financial position. iv. EITF Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease.” In May 2003, the EITF reached consensus in EITF Issue No. 01-08 to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to broaden the scope of arrangements accounted for as leases. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is, or includes, a lease within the scope of SFAS No. 13, “Accounting for Leases.” The Company has historically provided capacity agreements both as the lessee and as a lessor. Upon application of EITF Issue No. 01-08, the accounting requirements under the consensus may impact the timing of revenue and expense recognition, and amounts previously reported as 213 consolidated financial statements majority of the expected residual returns of the variable interest entity’s activities. In December 2003, the FASB issued FIN 46R, which supercedes and amends certain provisions of FIN 46. While FIN 46R retains many of the concepts and provisions of FIN 46, it also provides additional guidance related to the application of FIN 46, provides for certain additional scope exceptions, and incorporates several FASB Staff Positions issued related to the application of FIN 46. The provisions of FIN 46 are immediately applicable to variable interest entities created, or interests in variable interest entities obtained, after January 31, 2003 and the provisions of FIN 46R are required to be applied to such entities, except for special purpose entities, by the end of the first reporting period ending after March 15, 2004 (December 31, 2004 for The Company). For variable interest entities created, or interests in variable interest entities obtained, on or before January 31, 2003, FIN 46 or FIN 46R is required to be applied to special-purpose entities by the end of the first reporting period ending after December 15, 2003 (December 31, 2003 for calendar-year entities) and is required to be applied to all other non-special purpose entities by the end of the first reporting period ending after March 15, 2004 (December 31, 2004 for calendar-year entities). FIN 46 and FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date it is first applied, or by restating previously issued financial statements with a cumulative- effect adjustment as of the beginning of the first year restated. FIN 46 and FIN 46R also require certain disclosures of an entity’s relationship with variable interest entities. The Company has not identified any material variable interest entities created, or interests in variable entities obtained, after January 31, 2003 which requires consolidation or disclosure under FIN 46 and continues to assess the existence of any interests in variable interest entities created on or prior to January 31, 2003. The Company continues to assess the potential impacts of FIN 46R but does not anticipate that it will have a material impact on its consolidated results of operations, cash flows or financial position. 214 revenues may be required to be reported as rental or lease income. Should capital lease treatment be necessary, purchasers in these arrangements are required to recognize assets on their balance sheets. The consensus will be applied prospectively to arrangements agreed to, modified, or acquired in business combinations on or after January 1, 2004. Previous arrangements that would be leases or would contain a lease according to the consensus will continue to be accounted for under historical accounting. The adoption of EITF Issue No. 01-08 would not have a material effect on the Company’s consolidated results of operations, cash flows or financial position. v. EITF Issue No. 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes. ”In July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances and the economic substance of the transaction. In analyzing the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29, “Accounting for Nonmonetary Transactions,” should be considered. EITF Issue No. 03-11 was effective for transactions or arrangements entered into after December 31, 2003. The adoption of EITF Issue No. 03-11 would not have a material effect on The Company’s consolidated results of operations, cash flows or financial position. vi. Revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits. ”In December 2003, the FASB revised the provisions of SFAS No. 132 to include additional disclosures related to defined benefit pension plans and other defined benefit postretirement plans, such as the following: (1) long-term rate of return on plan assets along with narrative discussion of basis for selecting the rate of return used; (2) information about plan assets for each major asset category (i.e. equity securities, debt securities, real estate, etc) along with the targeted allocation percentage of plan assets by each major asset category and the actual allocation percentage at the measurement date; (3) amount of benefit payments expected to be paid in each of the next five years and the following five year period, in the aggregate; (4) current best estimate of range of contributions expected to be made in following year; (5) the accumulated benefit obligation for defined benefit pension plans; and (6) disclosure of measurement date utilized. The provisions of revised SFAS No. 132 do not change the measurement or recognition provisions of defined benefit pension and postretirement plans as required by previous accounting standards. Except as discussed below, the provisions of revised SFAS No. 132 are effective for fiscal years ending after December 15, 2003 (December 31, 2003 for calendar-year entities). The disclosure provisions of estimated future benefit payments and information about foreign plans are effective for fiscal years ending after June 15, 2004 (December 31, 2004 for the Company). See Note 37 II (l) for additional disclosures required as of December 31, 2003. vii. FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” In January 2003, the FASB issued FIN 46 which requires the primary beneficiary of a variable interest entity’s activities to consolidate the variable interest entity. FIN 46 defines a variable interest entity as an entity in which the equity investors do not have substantive voting rights and there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The primary beneficiary is the party that absorbs a majority of the expected losses and/or receives a Enersis / 2003 annual report condensed financial information Comercializadora de Energía del Mercosur S.A. - CEMSA ( Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003) Condensed balance sheet: Current assets Fixe assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Equity Total liabilities and equity Condensed income statement: Net sales Gross margin Net income 2003 ThCh$ 24,856,076 177,649 - 25,033,725 As of December 31, 2001 TcCh$ 21,108,703 147,059 64,910 21,320,672 17,324,966 13,630,496 - 7,708,759 25,033,725 2003 ThCh$ 3,514,138 - 1,355,690 - 7,690,175 21,320,672 For the year ended December 31, 2001 ThCh$ 2,809,318 - (3,421,870) 2001 ThCh$ 14,700,312 56,949 230,090 14,987,351 4,558,416 - 10,428,936 14,987,351 2001 ThCh$ 301,000 - 34,043 215 consolidated financial statements Companhia de Interconexao Energética ( Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003) Condensed balance sheet: Current assets Fixed assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Equity Total liabilities and equity Condensed income statement: 216 Net sales Gross margin Net income 2003 ThCh$ 106,812,150 356,019,916 53,893,288 516,725,354 296,330,546 98,517,952 121,876,856 516,725,354 2003 ThCh$ 226,389,219 (95,307,275) 24,758,491 As of December 31, 2001 ThCh$ 68,993,451 334,999,174 63,913,605 467,906,230 104,821,650 243,574,994 119,509,586 467,906,230 For the year ended December 31, 2002 ThCh$ 168,756,303 52,935,213 16,228,801 2001 ThCh$ 30,383,486 248,096,969 73,277,854 351,758,310 47,644,088 245,573,598 58,540,624 351,758,310 2001 ThCh$ 106,669,075 (5,396,974) (13,077,937) Enersis / 2003 annual report consolidated significant events Enersis S.A. (Parent Company) Capital Increase of Cerj With reference to the above, and taking into consideration the provisions established, the effects of the extraordinary adjustments and charges on the results of the company will amount to approximately the equivalent in Chilean Pesos of US$ 290 million. On December 10, 2002 the Extraordinary General Meeting of the Shareholders of the Company approved an increase in the capital of CERJ of approximately US$M 105,000. Provisional dividend This increase took place on January 10, 2003 by means of an issue and subscription of 770,833,333,333 new ordinary shares valued at R$ 0.48 per lot of one thousand shares, totaling the US$M 100,000 approved at the Meeting and which increased the capital of the Company by US$M 259,085. With this operation, the direct participation held by Enersis S.A. through its agency rose from 20.38% to 40.03%. Accounting adjustments and extraordinary charges during the 2002 period At an extraordinary meeting held on January 15, 2003 the Board of Directors of Enersis S.A. agreed to take note of the fact that the Company was to make accounting adjustments and extraordinary charges to the Balance Sheet with respect to its investments in its subsidiaries in Chile and abroad for a total of the equivalent of US$ 387 million in Chilean Pesos, reflecting these extraordinary adjustments in the results for the year 2002. These adjustments and extraordinary charges will not have an impact on the cash flows of the Company and will be reflected in the financial statements of Enersis S.A. corresponding to the year 2002. The adjustments and extraordinary charges made and the provisions established as of November 30, 2002 are broken down as follows (the figures shown correspond to the impact on the financial statements of Enersis S.A.): At a meeting held on February 10, 2003 the Board of Directors of Enersis S.A. unanimously agreed to pay a dividend in the month of February, 2003 as the conditions foreseen not in the Company’s Policy on Dividends were not present. Financial strengthening At an extraordinary meeting held on October 4, 2002 the Board of Directors of Enersis S.A. approved a financial strengthening plan aimed at strengthening the equity by improving its credit structure to permit the Company to face the situation in the region that was affecting its investments. For this, the same letter announced a capital increase of US$ 1,500,000,000 (One thousand five hundred million United States Dollars), which contemplated cash contributions and / or contributions consisting of financial credits. With respect to this capital increase, the Board of Enersis S.A., in its meeting held on February 17 of this year, has decided, with the unanimous vote of those members present, to propose to the shareholders at a General Meeting to be held for that purpose, that the amount of the capital increase be for the Chilean Peso equivalent to US$ 2,000,000,000 (Two thousand million United States Dollars), thus increasing by US$ 500,000,000 (Five hundred million Unites States Dollars) the figure originally contemplated. As informed in the mentioned Essential Fact letter, the capital increase contemplates cash contributions and / or contributions consisting of financial credits. 217 Country Generation Distribution Services Total Brazil US$ 60 million US$ 255 million Argentina US$ 23 million US$ 26 million US$ 315 million US$ 49 million Increase in capital of Enersis, debts to be capitalized Chile US$ 23 million US$ 23 million At the meeting held on March 7, 2003, the members of the Board of Totals US$ 83 million US$ 281 million US$ 23 million US$ 387 million Enersis S.A. present, unanimously agreed the following: We should point out that of the US$ 387 million, US$ 329 million came from the acceleration of the amortization of the net balance of the positive and negative goodwill of the investments in generation and distribution in Brazil and Argentina. To the above figure should be subtracted the provisions made as of November 30, 2002, in accordance with the following breakdown: US$ 81 million Brazil Argentina Total Provisions US$ 16 million US$ 97 million 1. The credits eligible for capitalization in the capital increase process that the Board has decided to propose at the Extraordinary General Meeting of Shareholders to be held on March 31, 2003, are the following: a) Credits outstanding granted to Enersis S.A. by Edesur S.A. for UF 58,701,778.99, and b) Debts outstanding corresponding to the issue of the local B1 and B2 bonds for UF 5,874,406.15, in accordance with the contract on the bond issue established in the deeds dated June 14 and August 30, both of 2001, drawn up before Notary Public Humberto Quezada in Santiago. consolidated financial statements 2. Place at the disposal of the Shareholders a specialists report on the obligations referred to in the point above, which shall be submitted for the approval of the Extraordinary General Meeting of Shareholders indicated above. The purchase price of the shares mentioned above offered by CGE Distribución S.A. amounts to US$ 170,071,000 (One hundred and seventy million and seventy one thousand United States Dollars). The effects of this operation on the results of ENERSIS S.A. will be approximately US$ 126 million before tax. Refinancing bank debt At a meeting held on March 11 of this year, the Board of the Company agreed the following: 1. ENERSIS S.A. (Enersis) and its subsidiary, Empresa Nacional de Electricidad S.A. (Endesa-Chile) gave mandates in order to initiate the syndication of credits for approximately US$ 2.3 thousand million, after reaching an agreement with the four lead banks. BBVA S.A., Dresdner Kleinwort Wasserstein, Salomon Smith Barney Inc. and Santander Central Hispano Investment Securities have agreed with Enersis and Endesa Chile to put into place an operation to refinance their bank borrowings. Enersis’ credit is for approximately US$ 1.6 thousand million whilst that of Endesa Chile amounts to approximately US$ 0.7 thousand million. The group of four entities holding the mandate account for approximately US$ 1.1 thousand million of the debt to be refinanced by the Group on a consolidated basis. 2. The principal objective of this refinance that falls within the Financial Strengthening Plan of these companies is, amongst others, to reduce consolidated borrowings by approximately US$ 2.2 thousand million. 218 3. The refinancing proposed has a new term up to 2008 with half-yearly amortizations commencing 30 months from the initiation of the new operation. Furthermore, the clause that permitted a demand for the pre-payment in the event of a deterioration of the credit rating given by the risk rating agencies will be replaced by a series of new financial covenants and commitments that will match their business plan. 4. Also considered is that the new operation will have certain additional guarantees, within the Enersis Group, that will be compatible with the limits permitted by the contracts that cover the rest of the current debts of Enersis and Endesa Chile. 5. The conditions of the operation have been agreed by the four banks mentioned and by the Directors of Enersis and Endesa Chile and will be presented shortly to the rest of the banks for their consideration and approval. Río Maipo awarded At a meeting held on March 28, 2003 the Board of Directors of ENERSIS S.A. analyzed the offers received for the entire shares that ENERSIS S.A. holds in its Chilean subsidiary, Compañía Eléctrica del Río Maipo S.A. (Río Maipo). Furthermore, the Board has agreed to propose to the Extraordinary General Meeting of Shareholders of ENERSIS S.A. to be held on March 31, 2003 that it authorize the sale of all the shares owned by ENERSIS S.A. issued by Río Maipo (356,078,645 shares), declared as essential assets, in favor of CGE Distribución S.A., a subsidiary of Compañía General de Electricidad S.A., that has presented the best purchase offer. Increase in capital of Enersis, repurchase of Yankee Bonds At a meeting held on March 28, 2003 the Board of Enersis S.A. agreed to propose the following operation to the Board of Directors of its subsidiary Enersis Internacional: To purchase from the shareholders of Enersis S.A. that hold the right to participate in the second preferential option period of the capital increase to be submitted to the Extraordinary General Meeting of Shareholders to be held on March 31, 2003, the American bonds that Enersis S.A.’s agency in Cayman Islands issued in November 1966 on the international market (Yankee Bonds). This purchase will take place with a global and total limit of US$ 50 million and in the other conditions established below or those additional terms that may be established by Enersis Internacional and will be advised to the market at the time. This acquisition will reflect a sign of support of the shareholders of Enersis S.A. who, in addition are holders of Yankee Bonds, which will motivate a greater subscription of the shares issued in this capital increase. The mechanism described shall have the additional benefit of reducing the consolidated debt of the Company, replacing it with equity. The purchase of the Yankee Bonds will be made at the same price estimated by the expert, Eduardo Walker in his expert report dated March 6, 2003 which has been widely circulated amongst the shareholders and the market in general and, for a limited amount, considering each shareholder individually, equivalent to the amount required for the shareholder to be in a condition to subscribe the pro rata that corresponds to him in the second period of the preferential offer of the capital increase of Enersis S.A. In accordance with the terms of the contract covering the purchase of the bonds he subscribes with Enersis Internacional, the shareholder that is selling is obliged to utilize the resources he will receive from the sale of his Yankee Bonds to subscribe the shares from the new issue of the Company. If the offers for sale of Yankee Bonds exceed the total and global amount of US$ 50 million, the purchase will be carried out, amongst all the interested parties, pro rata, in the conditions that will be determined by the Board of Enersis Internacional. Signing of the syndicated loans On May 12, 2003, syndicated loan agreements were signed by Enersis S.A. and its subsidiary Endesa Chile with 32 banks to refinance borrowings of US$ 2,330 million. We trust this operation will be concluded at the latest May 15, 2003 as it is subject to the satisfaction of the various conditions precedent. The US$ 2,330 million that mature during the current year and in 2004 will have a new term expiring in 2008 with amortizations commencing in the year 2005. These syndicated loans eliminate the possibility of any accelerated repayment of the credits due to a deterioration in the degree of investment rating. In accordance with Circular Nº 988 issued by that Superintendency, we inform you that the rise in the average financial costs of the debt involved in this operation will be more than compensated by the effects of the measures considered in the Financial Strengthening Plan of the Group, amongst which is the reduction of some US$ 2,300 million in consolidated debt. Enersis / 2003 annual report Refinancing part of the process of rationalization and simplification of the corporate structure of the Endesa Group. Following the agreement reached by the Board of Directors of Enersis S.A. in the meeting on May 15 of this year, we report the following: Provisional dividend 1. Enersis S.A. (Enersis) and its subsidiary Empresa Nacional de Electricidad S.A. (Endesa-Chile) as of this date, have complied with all the conditions precedent required for the syndicated loans, signed by these companies with 32 banks, amongst which are all the banks that participated in the previous bank credits – on last May 12. Thus, the operation has been closed. The signing of these credits has already been informed to that Superintendency in our Essential Fact letter dated May 12, 2003. 2. These syndicated loans will be utilized to refinance the debts of Enersis and Endesa Chile for some US$ 2,330 million, US$ 1,587 million corresponding to Enersis and US$ 743 million to Endesa-Chile. 3. The principal objective of this refinance that falls within the Financial Strengthening Plan of these companies, is to reduce consolidated borrowings by approximately US$ 2.3 thousand million. 4. The syndicated loans consider a new term up till 2008, at fixed annual rates for the life of the credits of Libor + 350 basis points for Enersis S.A. and Libor + 300 basis points for Endesa-Chile, with half- yearly amortizations of capital to commence from November 2005. These credits contemplate a grace period of 30 months from May 15, 2003 during which interest will be paid only on the new credits. This will permit Enersis and its subsidiary Endesa-Chile a better compatibility with its respective cash flows during the initial years with an adequate service of the current debt. The clause that allowed for an acceleration of the repayment in the potential case of a loss of the investment grade by Standard & Poor’s due to a deterioration in the risk rating granted by the risk rating agency and the clause that linked the interest of the credit to the risk rating of the Companies have been eliminated and were replaced by a series of new covenants and financial commitments in line with the business plans of the companies. 5. For the purposes of this refinancing, Enersis and Endesa-Chile have granted certain guarantees in favor of the 32 banks mentioned above. Enersis has given in lien all the shares it owns in Chilectra S.A. and has also given under lien the credits owed to it by Chilectra S.A. The obligations assumed by Endesa-Chile under the new credits are guaranteed by personal guarantees and co-debtor conditions its subsidiaries Empresa Eléctrica Pehuenche S.A., granted by Empresa Eléctrica Pangue S.A. and Compañía Eléctrica Tarapacá S.A. 6. The rise in the average financial costs of the aforementioned operation will be compensated by the effects of the measures considered in the Financial Strengthening Plan of the Group, amongst which is the reduction of some US$ 2,300 million in consolidated debt. Transfer of shares in Enersis On August 1, 2003 this company was informed that Elesur S.A. sold to Endesa Internacional S.A., both companies 100% controlled by the Endesa Spain Group, 17,321,166,047 shares in Enersis S.A. corresponding to 56.9697% of the capital of Enersis S.A. at a price equivalent to 68.5 pesos per share. This transfer does not mean any change in the total share participation the Endesa Group holds in Enersis S.A. nor in the control that the Group has over Enersis S.A. Furthermore, we are advised that this was done as At a meeting held on July 30, 2003 the Board of Directors of Enersis S.A. unanimously agreed not to pay a provisional dividend in the month of August 2003, charged to the results of the month of June, 2003 in accordance with current policy on the matter, as the conditions foreseen in the Company’s Policy on Dividends were not present. Provisional dividend At a meeting held on October 31, 2003 the Board of Directors of Enersis S.A. unanimously agreed not to pay a provisional dividend in the month of November 2003, charged to the results of the month of September 2003, in accordance with current policy on the matter, as the conditions foreseen in the Company’s Policy on Dividends were not present. Voluntary redemption of local bonds The process of “The Offer to Voluntarily Redeem Bonds Nº 269, Series B1 and B2, initiated last November 1 was concluded on November 15, 2003. This process gave all holders of these bonds issued by Enersis S.A. the option to exchange them for first issue payment shares in the Company. On concluding this process, we report that a total of 893,612,466 shares were subscribed, corresponding to Ch$ 53,992,243,918. This sum implies a reduction in debt for Enersis S.A. of UF 3,666,621. With this operation, 64.84% of the UF value of the Bonds Series B1 and B2 when it started were exchanged. 219 Furthermore, as a consequence of the exchange of these bonds, the shareholders of Enersis S.A. registered as of the close of November 14, 2003 may participate in the so-called Second Preferential Offer Period of the capital increase of the Company, having the right to subscribe 0.1196427367 shares of a new issue for each share registered in their names as of the date indicated above. Prepayment of syndicated loans In a meeting held on Tuesday, November 25, the Board of Directors of the Company agreed to report the following: 1. Enersis S.A. has prepaid the entire syndicated loan it had with BBVA S.A., Dresdner Kleinwort Wasserstein, Salomon Smith Barney, Inc. and Santander Central Hispano Investment Securities together with a further 27 institutions which was granted on May 15, 2003 for approximately US$ 1,587 million. This last prepayment implied for the Company the liberation of security established in favor of those creditor banks, i.e., the lien on the shares owned by Enersis S.A. and issued by its subsidiary, Chilectra S.A. as well as the lien on inter- company loans granted by Enersis S.A. in favor of Chilectra S.A. 2. This last prepayment was made principally with funds from a credit for US$ 500 million signed on November 14, 2003 with the Banco Bilbao Vizcaya Argentaria, The Bank of Tokio-Mitsubishi Ltd., Caja Madrid (Agency), Deutsche Bank Securities Inc. and San Paolo IMI S.p.A., from the issue and placement of bonds on the United States market (Yankee Bonds) on November 24, 2003 for US$ 350 million and from other sources. The Yankee Bonds were issued at a term of ten years and with a bullet payment, under Rule 144A at a rate of 7.375% per annum. consolidated financial statements 3. The refinancing mentioned falls within the Financial Strengthening Plan adopted by the Company on October 4, 2002. Capital increase is concluded At a meeting held on last December 18, the Board of Directors informed you by means of an Essential Fact letter of the conclusion of the Second Preferential Subscription Period of the capital increase of Enersis S.A. agreed by the Extraordinary General Meeting of Shareholders on March 31, 2003. As is public knowledge, this capital increase contemplated three phases; two periods of preferential subscription and one period to redeem local bonds payable in new issue shares. The First Preferential Subscription Period commenced on May 31, 2003 and concluded on June 30, 2003. The Second Preferential Subscription Period ran from November 20, 2003 to December 20, 2003. Furthermore, as also reported at the time to that Superintendency and to the general public, between last November 1 and 15, there was an “Offer to Voluntarily Redeem Bonds Nº 269, Series B1 and B2”, the result of which was informed to you by means of an Essential Fact letter dated last November 17. This process gave all the bearers of these local bonds issued by Enersis S.A. the option to exchange them for first issue payment shares in the Company. 220 On concluding the Second Preferential Subscription Period of the capital increase mentioned, we report that a total of 24,360,123,331 shares were subscribed, corresponding to Ch$ 1,471,843,528,820. This sum implies that 99.9% of the capital increase approved by an Extraordinary General Meeting of Shareholders of Enersis S.A. on March 31 is fully subscribed and paid in as of this date. (The part of the capital increase not subscribed and paid in will mature on December 30, 2003, leaving the capital of Enersis S.A. reduced to that actually subscribed and paid in). The effects this capital increase will have on the results of Enersis S.A., in accordance with Circular Nº 988 of that Superintendency cannot be reasonably quantified as of this date. Notwithstanding the above, we must bear in mind that this capital increase significantly strengthens the equity structure of the company. Elesur shares On December 22, 2003 Enersis S.A. was informed that its shareholder Elesur S.A. had sold and transferred to Endesa Internacional S.A., both 100% subsidiaries of the Endesa Spain Group, 1,778,826,237 shares in Enersis S.A., representing 5.448475% of the registered capital of Enersis S.A., at a price equivalent to Ch$ 84.50 per share. This transfer does not mean any change in the control that this Group has over the Company and we have been advised that this operation was done as part of the process of rationalization and simplification of the corporate structure of the Endesa Group in Spain. Chilectra S.A. Policy on dividends, investments and financing 2003 The policy on dividends with which the Board of Directors of Chilectra S.A. hopes to comply with a charge to the 2003 period is the following: Distribute in May, August and November, 2003 and in February, 2004 provisional dividends charged to the profits of 2003. In each of these months 85% of the profits derived from the normal operations of the Company during the quarters ending in March, June, September and December of that period. For the purposes of calculating the above, from 85% of the accumulated profit as of the quarter will be deducted the provisional dividends corresponding to the 2003 period already distributed as of the date of the payment. It will be understood that the results deriving from the normal operation, are those profits that the Company makes during the 2003 period, without considering those received from the following events: • The effects of accounting produced as a result of the revaluation adjustments made to the contributions to subsidiaries. • The effects of accounting produced by the registration of the over- price when the subsidiaries place their own shares. • By the profits generated, directly or indirectly by the investments in affiliates established both in the country and abroad. • By the profits generated by overseas subsidiaries or by subsidiaries in which the Company’s direct or indirect participation is less than 60% of their equity and by the profits derived from the sale of assets. • By the registration of the positive or negative goodwill of those investments. In the event that the total contribution from these events should be negative, this will be taken into consideration in the calculation of the profit to be distributed. Consequently, the Board of Directors will not distribute dividends against a charge to the profits deriving from these events and the Ordinary General Meeting of Shareholders will have to decide on that issue when approving the definite dividend. The above is the intention of the Board of Directors of the Company but its compliance will be conditioned to the profits that are effectively obtained and also to the results projected periodically by the Company or the existence of determined conditions. With respect to policy on definite dividends, it is the Board of Directors’ resolve that the total dividends to be distributed and charged to the period be at least for the amount of the provisional dividends already distributed or the same as those established in the Law of Quoted Companies, whichever of the two is the greater. 2. Policy on Investments and Financing Year 2003 The Board of Directors agreed to establish the following Policy on Investments and Financing for the year 2003: 1. Investments The Company will make investments as approved in the by-laws, in areas related to works to expand the capacity of supply related to the demand for electric power, in contributions to its subsidiaries or related companies and in contributions for investments in or the foundations of subsidiary or related companies whose corporate purpose is similar, related or linked to energy in any of its forms, to the supply of public services or that have energy as their principal raw material. Enersis / 2003 annual report Investments related to the expansion of the Company will be necessary in order to adequately satisfy demand for electricity in the area under concession. Investments in its related public service companies will be required to enable these subsidiaries or related companies to comply with their corporate purpose and with their functions as concessionaires. These investments will be made in projects to maximize the value of the Company, considering the level of risk associated with these investments and in line with the by-laws of the Company. For the purposes of controlling investments and in accordance with the Company’s corporate purpose, a proposal shall be submitted at the General Meeting of Shareholders of the subsidiaries and related companies to designate directors to represent the Company and these should preferably be members of the Board or senior executives, both of the company and of other related companies. In addition, policies on investments, financing and business will be established within the subsidiaries as well as on accounting criteria with which these must abide and the performance of the subsidiary and related companies will be supervised. 2. Financing The resources required for the local and international expansion process of the Company and the resources generated by the company’s operations are obtained in accordance with special plans for their financing. Alternatives considered amongst these are, according to the needs, share issues, supplier credit, bank finance and syndicated loans, multinational credit agencies, simple and convertible bonds and others. Furthermore, the resources may be obtained from local and international and other investors. Shareholders’ Meetings At the Ordinary General Meeting of Shareholders held on March 26, 2003 the following agreements were reached: 1. Approval of the Annual Report, Balance Sheet, Financial Statements and Report from the External Auditors corresponding to the period ended on December 31, 2002. 2. Approval and distribution of profits and information on the Policy on Dividends for the 2003 period. 3. Complete renewal of the Board of Directors. 4. Setting the remunerations of the Board of Directors. 5. Setting of the remunerations of the Committee of Directors and its budget. 6. Designation of the External Auditors. Accounting adjustments At an Extraordinary Meeting held on January 15, 2003 the Board of Directors of Chilectra S.A. unanimously agreed to be informed on certain accounting adjustments in the results of the financial statements of Chilectra S.A. as of December 31, 2002 deriving from the investments in its subsidiaries in Argentina and Brazil for an amount in local currency to US$ 145 million. These adjustments will not have an impact on the cash flows of the Company and are reflected in the financial statements of Chilectra S.A. corresponding to the year 2002. The adjustments are broken down as follows (the figures shown correspond to the impact on the financial statements of Chilectra S.A): Argentina Brazil Total Millions of US$ 14 131 145 Furthermore, as a result of these adjustments, the Board of Directors of Chilectra S.A. agreed to cancel the payment of the dividend in February 2003 agreed to in the Ordinary Meeting of the Board Nº 13/2002 held on December 19, 2002 with the amount to have been decided in the Board Meeting in January, 2003. The above indicates a change in the Policy on Dividends declared at the Ordinary general Meeting of Shareholders held on April 10, 2002. Definite dividend On March 26, 2003 the Ordinary General Meeting of Shareholders agreed to distribute a definite dividend, to be charged to retained earnings from previous years, of Ch$ 38,837,417,504 and to assign this amount to the dividends paid to the shareholders during the year 2002 that totaled the same amount. Renewal of the Board of Directors and the Committee of Directors 221 During the Ordinary General Meeting of Shareholders held on March 26, 2003 the following were elected Directors of the Company: Jorge Rosenblut José Manuel Fernández Hernán Felipe Errázuriz Pedro Buttazzoni Alvaro Quiralte Alberto Martín Rivals Marcelo Llévenes In addition, in the Extraordinary Meeting Nº 5/2003 of the Board of Directors held on March 26, following on from the Ordinary General Meeting of Shareholders, Jorge Rosenblut was appointed Chairman of the Board and José Manuel Fernández as Vice-Chairman. During the same meeting and in accordance with Circular Nº 1,526 of the Superintendency of Securities and Insurance, the following were appointed members of the Committee of Directors of Chilectra S.A.: Jorge Rosenblut, Hernan Felipe Errázuriz and Alberto Martín Rivals. Bond issue At Meeting Nº 13/2003 held on August 18, 2003, the Board of Directors of Chilectra agreed to carry out a Bond Issue in order to prepay debts, by means of the inscription with the Superintendency of Securities and Insurance of two lines of titles for up to a total equivalent amount in Chilean Pesos of UF 8.2 million. consolidated financial statements Organizational Structure 1. On Ordinary session number 6, 2004, celebrated on March 27, 2003, Chilectra’s Board of Directors approved the new organizacional structure for the Company. This structure is as follows: BOARD OF DIRECTOR Chairman Jorge Rosenblut Chief Executive Officer Julio Valenzuela Chief Communications Officer Marcelo Castillo Chief Planning and Control Office Jorge Faúndez Chief Regulation Officer Guillermo Pérez Del Río Financial Area José Luis Acuña Legal Counsel Gonzalo Vial Chief Human Resources Officer Carmen Pas Urbina Chief Corporate Business Officer Edgardo González Chief Contract Control Officer Víctor Orduña 222 Chief Distribution Officer Rolando Hechenleitner Chief Marketing Officer J. Camilo Olavarría Sub-Manager Technical Processes Miguel Del Valle Sub-Manager Planning and Engineering Sergio Zúñiga Sub-Manager Operations Sub-Manager Works and Maintenance Sub-Manager Sales Sub-Manager Business Operations Pedro Miquel Raúl Moya Sergio Urrutia Alfredo Herrera Sub-Manager Customer Service and Marketing Christian Mosqueira Sub-Manager Business Processes Mario Chávez 2. In Extraordinary Meeting Nº 11/2003 held on June 30, 2003 the Board of Directors of Chilectra S.A. approved a new organization structure which was established as follows: BOARD OF DIRECTORS Chairman Jorge Rosenblut Chief Executive Officer Rafael López Rueda Chief Communications Officer Marcelo Castillo Chief Distribution Officer Rafael López (I) Chief Regional Distribution and Services Officer Marcelo Silva Iribarne As a consequence of the above, the resignation of Julio Valenzuela as Chief Executive Officer was accepted and Rafael López was named Chief Executive Officer in his place. At the same time, a new position of Chief Executive Officer Distribution Chile was created, reporting to the Chief Executive Officer, and this post will be held on an interim basis by Rafael López and a new Chief Regional Distribution and Services Officer position was created and will be occupied by Marcelo Silva. 3. In Ordinary Meeting Nº 12/2003 held on July 29, 2003 the Board of Directors of Chilectra S.A. named Rafael López as Chief Executive Officer of Distribution Chile and created the Financial and Control Management to be headed by Juan Pablo Spoerer. We would mention that up until last July 29, Rafael López occupied the position of Chief Executive Officer of Distribution Chile on an interim basis. Enersis / 2003 annual report 4. In Extraordinary Meeting Nº 18/2003 held on December 18, 2003 the Board of Directors of Chilectra S.A. approved a new organization structure of the Company which was established as follows: Chairman Jorge Rosenblut R. Chief Executive Officer Rafael López R. Chief Communications Officer Marcelo Castillo S. Chief Regional Services Officer Cristóbal Sánchez Legal Counsel Gonzalo Vial V. Chief Regulation Officer Guillermo Pérez Del Río. Chief Regional Distribution Officer Marcelo Silva I. Chief Financial and Control Officer Juan P. Spoerer H. Chief Planning and Control Officer Jorge Faúndez P. Chief Operations Officer J. Camilo Olavarría Chief Contract Control Officer Victor Orduña R. Chief Human Resources Officer Carmen Paz Urbina S. Chief Distribution Officer Chief Corporate Business Officer Chief Marketing Officer Rolando Hechenleitner K. Edgardo González G. NN. Amongst the most important changes, we highlight the elimination of the position of Chief Distribution Chile Officer and the creation of its replacement, Chief Operations Officer occupied by Juan Camilo Olavarría. Also, the current Chief Regional Distribution and Services Officer position has been split into the Chief Regional Distribution Officer occupied by Marcelo Silva and the Chief Regional Services Officer occupied by Cristóbal Sánchez. Endesa S.A. (Parent Company) • On March 11, 2003 we reported as an Essential Fact that the Board of Directors, at its meeting held on February 27, 2003 agreed to advise as an Essential Fact, when it would occur, that an agreement had been reached with the banks listed below, to proceed with a process of refinancing part of the bank borrowings of Empresa Nacional de Electricidad S.A. (Endesa). On this matter, we would point out that today, Endesa reached an agreement with BBVA S.A., Salomon Smith Barney Inc., Dresdner Kleinwort Wasserstein and Santander Central Hispano Investment Securities to initiate the process of refinancing part of the bank debts of the company for a total amount of approximately US$ 0.7 million. The banks mentioned represent approximately 45% of the figure mentioned above. The terms of the operation that consider certain additional security compatible with the limits permitted by the contracts that cover the rest of the current debt of Endesa, have already been agreed by the Board of Directors of Endesa and by the four mentioned banks and will shortly be presented to the rest of the banks for their consideration and approval. The refinancing proposed has a new term up to 2008 with half-yearly amortizations commencing 30 months from the initiation of the operation. Furthermore, the clause that permitted a pre-payment in the event of a deterioration of the credit rating given by the risk rating agencies will be replaced by a series of new financial covenants and commitments that will match the business plan of the company. This process of refinancing the company falls within the Financial Strengthening Plan adopted recently by the company with the main object of reducing the company’s debts. 223 • On March 27, 2003 we informed as an Essential Fact that at a meeting held today, the Board of Directors agreed to inform as an Essential Fact that the Board of Directors of the Company agreed to approve the offer to acquire the assets of the Canutillar Plant for an amount of US$ 174,000,000 submitted by Hidroeléctrica Guardia Vieja S.A., payable in cash upon the signature of the respective sale contracts, all within the tender process of those generating assets led by the Dresdner Kleinwort Wasserstein Bank, as the advisor to Endesa in this private tender process. This award on the part of the Board of Directors is subject to the authorization of the Extraordinary General Meeting of Shareholders of Endesa to be held on March 31 of this year to divest the Plant in question, in accordance with Article 28 Letter f) of the by-laws of the company and the dispositions of the Policy on Investments and Financing of the company. The Board of Directors further agreed, also subject to the conditions indicated above, to provide the corresponding powers of attorney in order that all the necessary acts, contracts and agreements related to the sale of all the properties, assets, rights and concessions involved in the sale of the mentioned Plant be signed. The divestment of the Canutillar Plant falls within the Financial Strengthening Plan approved by the Board of Directors in October, 2002 that contemplates, amongst other main steps to be taken, the divestment of those assets announced at the time to the market. The funds received from these sales will be utilized to reduce the debt of the Company. • Ordinary and Extraordinary General Meetings of Shareholders were held on March 31, 2003 with the object of deciding over the following matters: consolidated financial statements ORDINARY GENERAL MEETING 1. Approval of the Annual Report, Balance Sheet, Financial Statements, Report from the External Auditors and Inspectors of Accounts corresponding to the period ended on December 31, 2002; and registration of the result for the period in the capital and reserves accounts; 2. Explanation on the Policy on Dividends of the company and information on the procedures to be followed on the distribution of dividends; 3. Policy on Investments and Financing proposed by the Board of Directors; 4. Election of the Board of Directors of the Company; 5. Setting the remunerations of the members of the Board of Directors. 6. Setting of the remunerations of the Committee of Directors and its budget. 7. Report from the Committee of Directors; 8. Designation of the External Auditors. 9. Election of two principal Inspectors of Accounts and two deputies and the setting of their remunerations; 224 10. Other matters of interest to the company and responsibility of the Shareholders Meeting and information on the operations referred to in Article Nº 44 of Law Nº 18,046. EXTRAORDINARY GENERAL MEETING 1. In accordance with Article 28 Letter f) of the by-laws of the company and the indications in the Policy on Investments and Financing of the Company, request the authorization of the Extraordinary General Meeting of Shareholders to divest the Canutillar Hydroelectricity Plant; At the same meeting, the Board agreed to designate Luis Rivera, Jaime Bauzá and Antonio Tuset as members of the Committee of Directors. • On April 1, 2003 we reported by means of an Essential Fact letter that at the Extraordinary General Meeting of Shareholders of Empresa Nacional de Electricidad S.A. held yesterday, approval was granted with the unanimous vote of the shareholders present, to sell the Canutillar Hydroelectricity Plant owned by Endesa. In virtue of this, the condition established by the Board of Directors of awarding the Plant mentioned to Hidroeléctrica Guardia Vieja S.A. at a price of US$ 174,000,000 has been met, as agreed by the Board of Directors of the Company in the Board Meeting held on March 27 of this year and communicated in an Essential Fact letter on that same date. • On April 7, 2003 we reported by means of an Essential Fact letter that on April 4, 2003 we complied with the conditions established to continue with the process of selling to HQI Transelec, the transmission assets owned by our subsidiary Compañía Eléctrica Tarapacá S.A. (Celta) and by our related company Gasatacama Generación Ltda. in the Northern Interconnected System (SING). In effect, with the selling and buying companies having ratified the terms and conditions of the sale of the transmission lines and sub-stations included in the operation, the conditions established at the time in order to go ahead with this commitment to sell the assets, have been met. With regard to our subsidiary Celta, the operation includes the sale of 285 Kms. of 220 KV. tension circuit lines. In the case of our related company, Gasatacama Generación Ltda., in which Endesa has a 50% interest, the transfer includes 673 Kms. of circuit lies with the same tension. In both cases, the operations contemplate the transfer of certain sub-stations owned by the two companies. The total assets to be sold represent nearly 20% of the transmission assets of the SING. The price received by our subsidiary Celta is approximately US$ 32 million and with respect to our related company, Gasatacama Generación Ltda., the amount is approximately US$ 78 million. 2. Adopt all the agreements required to comply with and carry out adequately the above approval. The estimated date of the signature of the transfer contracts is May 30 of this year. In accordance with the indications in Point 4 of the Ordinary General Meeting of Shareholders a new Board of Directors was appointed for the Company which is comprised as follows: With respect to Endesa, the sale of the transmission assets falls within the Financial Strengthening Plan approved by the Board of Directors in October 2002 that contemplates, amongst other main steps to be taken, the divestment of those assets announced at the time to the market. Jaime Bauzá Ignacio Blanco José María Hidalgo Antonio Pareja Luis Rivera Andrés Regue Carlos Torres Antonio Tuset Leonidas Vial At an Extraordinary Meeting of the Board of Directors held on the same date, the Board 0f Directors designated Luis Rivera as Chairman of the Board and Antonio Pareja as Vice Chairman. • On April 30, 2003 we reported by means of an Essential Fact letter that today we closed the operation involving the divestment of the Canutillar Hydroelectric Plant to CENELCA S.A., a subsidiary of Minera Valparaíso S.A. for a sum of US$ 174,000,000, having signed the respective transfer contracts In this way, we have concluded the process of divestment of the Plant mentioned that has an installed capacity of 172 MW and is located in the X Region of the country. The award to the purchasing group was communicated in our Essential Fact letter dated April 1, 2003. This divestment falls within the Financial Strengthening Plan approved by the Board of Directors of the company which has been progressing as planned. Enersis / 2003 annual report As of March 31, 2003, the Company established provisions for ThCh$ 5,032,803 corresponding to the estimated loss on this operation. • On May 12, 2003 we reported by means of an Essential Fact letter that today Empresa Nacional de Electricidad S.A. and a group of 24 banks led by BBVA S.A., Salomon Smith Barney Inc., Dresdner Kleinwort Wasserstein and Santander Central Hispano Investment Securities, signed a syndicated loan to refinance the bank borrowings of the Company for US$ 743 million. The preliminary agreement with the lead banks on this financial operation was advised to the market by means of our Essential Fact letter dated March 11 of this year. Standard & Poor’s due to a deterioration in the risk rating granted by the risk rating agencies and the clause that linked the interest of the credit to the risk rating of the Companies have been eliminated and were replaced by a series of new covenants and financial commitments in line with the business plans of the companies. Furthermore, and as we pointed out in our last Essential Fact letter dated May 12 of this year, the increase in the financial cost of the debt associated to this financial operation will be compensated by the effect we hope to attain from the compliance with all the financial and divestment operations considered in the Financial Strengthening Plan of the Company. The conclusion of this refinancing operation is subject to the compliance with several conditions precedent that must be completed on Thursday, May 15. This refinancing process concluded today is a significant aspect within the Financial Strengthening Plan being carried out by the company. As a result of this refinancing, Endesa’s obligations that originally matured this year and next, are deferred until the year 2008, with amortizations of capital commencing in the year 2005. The syndicated loan that covers the refinancing eliminates the event of an accelerated repayment of the obligations due to a deterioration in the risk rating of the Company to levels below the investment grade. The increase in the average financial costs of the debt associated to this operation will be compensated by the effects that we expect to reach with the compliance of all the financial operations and the divestments considered in the Financial Strengthening Plan of the Company. This refinancing covers most of Endesa’s bank borrowings and represents a significant ingredient of the Financial Strengthening Plan approved by the Board of Directors of the Company in October 2002 and which has been complied with as expected. • On May 15, 2003 we reported by means of an Essential Fact letter that, complementing our Essential Fact letters of March 11 and May 12, 2003, both with reference to the process initiated by the Company to sign a syndicated loan to refinance the Company’s bank borrowings for US$ 743 million with 24 banks led by BBVA S.A., Salomon Smith Barney Inc., Dresdner Kleinwort Wasserstein and Santander Central Hispano Investment Securities, we advise that as of this date, we have complied with all the conditions precedent required in this syndicated loan and this operation has been definitely closed. Endesa’s obligations under this syndicated loan are secured by personal guarantees and co-debtor responsibilities provided by its subsidiaries Empresa Eléctrica Peheunche S.A., Empresa Eléctrica Pangue S.A., Compañía Eléctrica Tarapacá S.A. and Endesa Chile Internacional. A fundamental effect of the refinancing signed is that the obligations of the Company that originally matured in 2003 and 2004, now have a term that expires in 2008 with half-yearly amortizations of capital commencing 30 months after the date of signature. This implies that the amortizations of capital will start on November 15, 2005. During this period of 30 months, the Company will only pay interest accrued on the new credits which, all told, will permit Endesa a harmony between an adequate service of the current debt and its generation of cash flows. The annual rate for the duration of these credits will be Libor + 300 bases points. The clause that allowed for a demand for an anticipated acceleration of the repayment in the potential case of a loss of the investment grade by • On June 23, 2003 we reported by means of an Essential Fact letter that today we proceeded to close the process of the sale of the entire stock participation that Empresa Nacional de Electricidad S.A. maintained directly in Infraestructura Dos Mil S.A., Inecsa Dos Mil S.A., Sociedad Concesionaria Autopista del Sol S.A. and in Sociedad Concesionaria Autopista Los Libertadores S.A. to the Spanish company, OHL Concesiones S.L., a subsidiary of the Spanish company, Obrascón Huarte Lain S.A. for a total sum of UF 2,305,507, having signed all the respective transfer contracts. • On July 23, 2003 we reported by means of an Essential Fact letter that, in accordance with the indications of Articles 9 and 10, Point 2 of Law Nº 18,045 and the conditions of Circular Nº 1072 of the Superintendency of Securities and Insurance, Empresa Nacional de Electricidad S.A., through its Agency overseas, has today proceeded to issue, in line with Rule Nº 144-A of the Securities Act of 1933 of the United States of America, two series of bonds on the international markets for a total amount of US$ 600,000,000. 225 The purpose of these bond issues is to provide the Company with financial resources to refinance the maturity of the three-year bonds, known as European Floating Rate Notes (FRN’s), issued by the subsidiary Endesa Chile Internacional, for an amount of Euros 400 million expected to mature on July 24, 2003. In order to cover the payment of the FRN’s, the company signed a Euro/US$ swap contract resulting in the net obligation to pay US$ 381 million for the FRN’s at maturity. The remaining funds coming from the bond issue will be utilized fundamentally to prepay bank borrowings of the Company. The operation is structured in two stages: - US$ 400 million in unsecured bonds to mature in 2013 at a rate of 8.35%. - US$ 200 million in unsecured bonds to mature in 2015 at a rate of 8.625% • On August 1, 2003 we reported by means of an Essential Fact letter that, in accordance with the indications of Articles 9 and 10, Point 2 of Law Nº 18,045 and the conditions of Circular Nº 1072 of the Superintendency of Securities and Insurance, we complemented our communication by means of an Essential Fact letter dated July 23 of this year in which we reported that on that same date Empresa Nacional de Electricidad S.A., through its Agency overseas, had proceeded to issue, in line with Rule Nº 144-A of the Securities Act of 1933 of the United States of America, two series of bonds on the international markets for a total amount of US$ 600,000,000. consolidated financial statements Adding to this information, we advise that yesterday the aforementioned issue was registered before the Securities and Exchange Commission. • On October 6, 2003 we reported by means of an Important Fact letter that, during the night of last Friday, October 3 the operations of 9 of the 10 turbines in the hydroelectricity plant of our subsidiary in Brazil, Cachoeira Dourada S.A. were paralyzed by order of the Goias Federal State Environmental Agency. As a result, of the 658 MW capacity of the Plant, for technical reasons only 1 with a capacity of 17MW is operating. The reason alluded for this measure was apparently the lack of the corresponding environmental license authorizing Cachoeira Dourada S.A. to operate the electricity plant. The requirement to have an environmental license was imposed by law in Brazil in 1996. We would point out that Endesa acquired the ownership of Cachoeira Dourada S.A. during the process of privatization organized by the State of Goias and by the Federal Union in the year 1997. As of the date of privatization, Cachoeira Dourada S.A. did not possess an environmental license to operate the plant, just as none of the hydroelectricity generating stations operating in the State of Goias had one then or have one now. During the year 1998, Cachoeira Dourada S.A. initiated the process required to obtain the mentioned license before the Federal Environmental Authority (IBAMA) that claimed the authority to issue the environmental licenses to all the Hydroelectricity Generating Stations that make use of federal rivers, which is the case of our subsidiary, Cachoeira Dourada S.A. 226 Currently, the process to obtain an environmental license continues its normal administrative procedure before the federal environmental authority and we would mention that Cachoeira Dourada S.A. is the company most advanced in this administrative process in respect of the other electricity plants in the State of Goias. From the above, it is clear that the measure taken by the Environmental Agency of the State of Goias, without precedent in the Federal Republic of Brazil, is clearly arbitrary and discriminatory as we feel that it should have been lifted in the short term as it reveals the existence of a conflict of authority, the solution of which should not be delayed. the turbines decreed by that agency, in compliance with the Agreement signed yesterday in the city of Brasilia between Cachoeira Dourada S.A. and the State Environmental Agency mentioned, by virtue of which the latter promised to leave without effect the administrative order it had decreed. As a result of the above-mentioned judicial resolution and the administrative act issued by the Environmental Agency of the State of Goias, the Plant belonging to Cachoeira Dourada S.A. proceeded on that same day to reinitiate the normal operations with all its turbines. • On October 24, 2003 we reported that Empresa Nacional de Electricidad S.A. placed a bond issue on the local market for the sum of UF 8,000,000. This placement was made in two series, each one for UF 4,000,000, the first at a term of seven years at a rate of 5.65% and the second at a term of twenty-five years at a rate of 6.76%. The resources obtained from this operation, which forms part of the Financial Strengthening Plan, will go towards refinancing the company’s debts. Pehuenche • An Ordinary General Meeting of Shareholders was held on March 31, 2003 with the object of discussing and approving the following matters: ORDINARY GENERAL MEETING 1. Approval of the Annual Report, Balance Sheet, Financial Statements and the Report from the External Auditors corresponding to the period ended on December 31, 2002; 2. Distribution of Profits and payment of dividends; 3. Explanation on the Policy on Dividends of the company and information on the procedures to be followed on the distribution of dividends; 4. Setting of the remunerations of the Committee of Directors and its Notwithstanding the above, the subsidiary, Cachoeira Dourada S.A., will appeal to all the administrative and judicial levels with the same purpose. budget. We would point out that, according to the information contained in our last consolidated financial statements, Cachoeira Dourada S.A. has only one client, that being the state distribution company of the State of Goias, CELG that is in litigation with our subsidiary, having obtained a judicial resolution to provisionally suspend the payment of its invoices as of the month of April of this year with respect to the contract for energy. At this moment and following a new judicial decision, the Goias State distribution company must pay 50% of the contract. • On October 10, 2003 we reported by means of an Important Fact letter that, with respect to the paralyzation of 9 of the 10 turbines in our subsidiary, Cachoeira Dourada S.A. in the State of Goias in Brazil, today the competent tribunal in that State accepted a limiting measure submitted yesterday by our subsidiary, Cachoeira Dourada S.A., in order to suspend the measure decreed by the agency of the State of Goias that ordered the paralyzation in question. Notwithstanding the above and also on this date, the Environmental Agency of the State of Goias proceeded to suspend the order to paralyze 5. Report from the Committee of Directors; 6. Designation of the External Auditors. 7. Other matters of interest to the company and responsibility of the Shareholders Meeting and information on the operations referred to in Article Nº 44 of Law Nº 18,046. EXTRAORDINARY GENERAL MEETING 1. Modify Article Nº 4 of the by-laws by adding to the corporate purpose the granting by the company of personal guarantees and tangible security in favor of third parties; 2. The granting by the Company in favor of its parent company, Empresa Nacional de Electricidad S.A., of a personal guarantee and a co-debtor condition for up to US$ 268 million to secure the credit obligations of Empresa Nacional de Electricidad S.A. in the terms and conditions agreed by the Extraordinary General Meeting of Shareholders; Enersis / 2003 annual report 3. Adopt all the agreements necessary to comply with and carry out the 4. Setting the remunerations of the members of the Board of Directors. decisions made in regard to the above points; • On March 28, 2003, we reported that the Ordinary General Meeting of the Shareholders of the Company held on March 27, 2003 October 24, 2003 approved the payment of a definite dividend of Ch$ 13.155865 per share. This dividend will be paid as of April 8, 2003. • On May 16, 2003 we reported by means of an Important Fact letter that by public deed dated May 15 of this year, granted before Notary Public Patricio Zaldívar, Empresa Eléctrica Pehuenche S.A. became a guarantor for up to US$ 185 million in the terms indicated under Title Thirty Six of Book IV of the Civil Code of the Republic of Chile, assuming its obligation as co-debtor in the terms stated in Title Nine of Book IV of the same Code with respect to the integral and prompt compliance of all and each one of the obligations in favor of the creditors and that were assumed by Empresa Nacional de Electricidad S.A., acting through its agency abroad, emanating from the Loan Agreement on the credit that, on May 12 of this year, a series of financial institutions led by Banco Bilbao Vizcaya Argentaria, Dresdner Bank A.G., Banco Santander Central Hispano S.A. and Citibank N.A. granted to Empresa Nacional de Electricidad S.A., acting through its Agency overseas. The credit amounts to US$ 742,857,142.86. We would point out that the personal guarantee and the co-debtor condition granted by Empresa Eléctrica Pehuenche S.A. was approved at the Extraordinary General Meeting of the Shareholders of the Company held on March 27 of this year. • On June 27, 2003 we reported that at a meeting held on June 26, 2003 the Board of Directors agreed to pay a provisional dividend amounting to Ch$ 11.617344 per share on July 25, 2003. This provisional dividend is in accordance with the policy advised to the Ordinary General Meeting of Shareholders. • • In a meeting held on September 30, 2003 the Board of Directors agreed to pay a provisional dividend in accordance with the policy advised to the Ordinary General Meeting of Shareholders. This provisional dividend will amount to Ch$ 15.346562 per share and will be paid on October 27, 2003. In a meeting held on December 29, 2003 the Board of Directors agreed to pay a provisional dividend in accordance with the policy advised to the Ordinary General Meeting of Shareholders. This provisional dividend will amount to Ch$ 19.006468 per share and will be paid on January 28, 2004. Pangue • An Ordinary General Meeting of Shareholders was held on March 27, 2003 with the object of debating over and approving the following matters: ORDINARY GENERAL MEETING 1. Approval of the Annual Report, Balance Sheet, Financial Statements and the Report from the External Auditors corresponding to the period ended on December 31, 2002; 2. Distribution of Profits and payment of dividends; 3. Explanation on the Policy on Dividends of the company and information on the procedures to be followed on the distribution of dividends; 5. Designation of the External Auditors. 6. Other matters of interest to the company and responsibility of the Shareholders Meeting and information on the operations referred to in Article Nº 44 of Law Nº 18,046. • On March 28, 2003 we reported that the Ordinary General Meeting of Shareholders held on March 27, 2003 approved the payment of a definite dividend of Ch$ 11.335754 per share. This dividend will be paid as of April 23, 2003. • On April 11, 2003 Empresa Eléctrica Pangue S.A. reported that the Extraordinary General Meeting of Shareholders held on April 10, 2003 authorized the company to grant a personal guarantee and to act as a co-debtor for an amount up to US$ 743 million to secure the credit obligations of Empresa Nacional de Electricidad S.A. The meeting left on record that, in accordance with Point 4 of Article Nº 69 of Law Nº 18,046, this approval by the Extraordinary General Meeting of Shareholders on the subject covered by the paragraph above, grants the right to any dissident shareholder to withdraw from the company after paying the value of his shares. A dissident shareholders is considered one that at the Extraordinary General Meeting of Shareholders opposed the agreement, giving him the right to withdraw, or that, not having attended the Meeting, expressed his opposition in writing to the company within the term established in the following paragraph. The right to withdraw, according to Article Nº 70 of the Law quoted, must be exercised within a term of 30 days from the date of the Extraordinary General Meeting of Shareholders in question, i.e. between April 10 and May 9, 2003, both dates inclusive. 227 The right to withdraw covers only the shares that the dissident shareholder had inscribed in his name in the register of shareholders of the company as of the date that determined his right to participate in the Extraordinary General Meeting of Shareholders that adopted the respective agreement which was April 3, 2003. The price to be paid per share for the right to withdraw will be the book value of the share as of March 31, 2003 which was Ch$ 258.57 per share. • On May 16, 2003 we reported by means of an Essential Fact letter that by public deed dated May 15 of this year, granted before Notary Public Patricio Zaldívar, Empresa Eléctrica Pangue S.A. became a guarantor for an initial period of 364 days taken from the aforementioned date, in the terms indicated under Title Thirty Six of Book IV of the Civil Code of the Republic of Chile, assuming its obligation as co-debtor in the terms stated in Title Nine of Book IV of the same Code with respect to the integral and prompt compliance of all and each one of the obligations in favor of the creditors and that were assumed by Empresa Nacional de Electricidad S.A., acting through its agency abroad, emanating from the Loan Agreement on the credit that, on May 12 of this year, a series of financial institutions led by Banco Bilbao Vizcaya Argentaria, Dresdner Bank A.G., Banco Santander Central Hispano S.A. and Citibank N.A. granted to Empresa Nacional de Electricidad S.A., acting through its Agency overseas. The total amount of the credit is US$ 742,857,142.86. consolidated financial statements We would point out that the personal guarantee and the co-debtor condition granted by Empresa Eléctrica Pangue S.A. was approved at the Extraordinary General Meeting of the Shareholders of the Company held on April 10 of this year. • On June 27, 2003 we reported that at a meeting held on June 26, 2003 the Board of Directors agreed to pay a provisional dividend amounting to Ch$ 19.716808 per share on July 25, 2003. This provisional dividend is in accordance with the policy on dividends advised to the Ordinary General Meeting of Shareholders held on March 27, 2003. • On July 4, 2003 we reported that at a meeting held on June 26, 2003 the Board of Directors of the Company agreed to call for an Extraordinary General Meeting of Shareholders for July 29, 2003. The purpose of the Extraordinary Meeting is to debate and decide on the following matters: 1. Request the Superintendency of Securities and Insurance to strike off the inscription of Empresa Eléctrica Pangue S.A. from the Securities Register. The meeting left on record that, in accordance with Point 4 of Article Nº 69 of Law Nº 18,046, this approval by the Extraordinary General Meeting of Shareholders on the subject covered by the paragraph above, grants the right to any dissident shareholder to withdraw from the company after paying the value of his shares. A dissident shareholders is considered one that at the Extraordinary General Meeting of Shareholders opposed the agreement, giving him the right to withdraw, or that, not having attended the Meeting, expressed his opposition in writing to the company within the term established in the following paragraph. The right to withdraw, according to Article Nº 70 of the Law quoted, must be exercised within a term of 30 days from the date of the Extraordinary General Meeting of Shareholders in question, i.e. between July 29 and August 27, 2003, both dates inclusive. The right to withdraw covers only the shares that the dissident shareholder had inscribed in his name in the register of shareholders of the company as of the date that determined his right to participate in the Extraordinary General Meeting of Shareholders that adopted the respective agreement which was July 22, 2003. 2. Modify Articles 10, 18, 23 and 30 from the by-laws of the Company in order to adapt them to the regulations applicable to unquoted corporations. The price to be paid per share for the right to withdraw will be the book value of the share as of June 30, 2003 which was Ch$ 286.461711 per share. 3. Insert a modified text into the Company’s Bylaws. 4. Adopt all the agreements required to comply with and carry out adequately the decisions in relation to the above points. 228 • On July 30, 2003 we reported that in view of the contents of Article 69 a) of the Law on Stock Companies and General Norm Nº 30 of the Superintendency of Securities and Insurance, I hereby inform you that the Extraordinary General Meeting of Shareholders of the company held on July 29, 2003 agreed to request the elimination of the Company from the Register of Securities of the Superintendency of Securities and Insurance. • On September 26, 2003 we reported that, in compliance with the subject approved by the Extraordinary General Meeting of Shareholders of Empresa Eléctrica Pangue S.A. held on July 29, 2003 we request the cancellation of the inscription dated August 10, 1992 corresponding to Empresa Eléctrica Pangue S.A. in the Register of Securities of the Superintendency of Securities and Insurance shown as Nº 419. • On November 26, 2003, the Superintendency of Securities and Insurance, by means of Exempt Resolution Nº 440 struck off, at the request of the interested party, the inscription in the Register of Securities Nº 419 corresponding to Empresa Eléctrica Pangue S.A. Enersis / 2003 annual report ratio analysis of the consolidated financial statements for the period ended on December 31, 2003 economic-financial summary The net result as of December 31, 2003 was a profit of Ch$ 12,468 million, which compares favorably with the loss of Ch$ 225,985 million registered in December, 2002. In this respect, we must remember the this loss was fundamentally the result of the acceleration of the amortization of the balances of the positive and negative goodwill accounts related to the investments made by the Company in Argentina and Brazil. Operating Revenues amounted to Ch$ 531,098 million for the period ended on December 31, 2003, a slight decrease of Ch$ 6,873 million, or 1.3%, with respect to the same period of the year 2002. In order to compare these on an equal basis, it is important to mention that this decrease is principally due to the effects of the divestment and consequently of the deconsolidation of the subsidiaries, Río Maipo and Infraestructura Dos Mil S.A. as, leaving aside this effect, the operating result would have risen by 2.2%. At the same time, we must point out the strong impact that the important appreciation of the Chilean Peso versus the US Dollar had on the operating result (17.4%), falling from a rate of Ch$ 718.61 to Ch$ 593.8 in December, 2003. This is an important consideration as, if we isolate this effect, the operating result would have grown by 12.4%. In this consideration, the increase in the operating results of the subsidiaries Codensa, Cerj, Edesur and the service and engineering companies Synapsis and CAM have compensated the fall in the results obtained in the subsidiaries Endesa Chile, Edelnor, Coelce and Inmobiliaria Manso de Velasco. Still on the operations area, the basis of the Company’s business, we must highlight the increase of 4.2% in physical sales in the distribution business that rose from 47,679 GWh to 49,677 GWh, which is consistent with the pace of the economic recovery of most of the countries in which the Enersis Group has operations. On the other hand, sales of power in the generation area also rose from 48,629 GWh to 51,053 GWh, a growth of 5.0%. Physical sales of distribution, when compared to last year, showed the following behavior: Chilectra Edesur Edelnor Cerj Coelce Codensa 5.7% 4.1% 2.6% 3.5% 6.1% 2.7% Physical sales of generation, by country, grew as follows: Chile Argentina Peru Colombia Brazil 1.8% 17.2% 6.8% 1.8% 4.9% These partial increases permit us to confirm what we have been saying with respect to the recovery in consumption of electricity after two years and a half in which physical sales grew at rates slightly over 1%. This greater volume of physical sales, added to the greater generation of electricity, is also a reflection of the recovery in consumption, confirming what we said in the preceding paragraph. These two elements are of great importance in the evaluation of our principal business, its projections and its expectations. Furthermore, in the operating area, we should highlight the rise of 5.1% in the number of clients that went from 9,978 thousand to 10,482 thousand, representing an increase of 504 thousand clients or the equivalent to incorporating, in one year, a company one and a half times the size of Río Maipo. This growth, added to the recovery in demand mentioned above, permits us to presuppose a sustained improvement in the level of sales in the year 2004. Another important element in the field of operations, labor productivity improved by 5.1%, rising from 1,367 clients per employee to 1,436 clients per employee, confirming the positive tendency experienced throughout the last four years. Losses of energy (aggregate of all the companies), another variable in the distribution business, grew from 11.9% to 12.2%. This variation is explained principally by the increase experienced by Edesur, Cerj and Coelce, negative effects that were not able to be compensated by the fall in loss of energy registered by Edelnor and Codensa. 229 The Ch$ 158,399 million fall in Operating Revenues, equivalent to 6.3%, were partially compensated by an important reduction of 5.5% in Operating Costs which fell by Ch$ 95,619 million and by the important reduction of 24.8% in Administrative and Selling Expenses, confirming the great effort made by this area. The company managed to improve its Net Financial Result by Ch$ 9,996 million, an increase of 2.8% with respect to the close of the year 2002. This was principally due to a the strong reduction in debt carried out during the year 2003 and to the benefits of lower interest rates. This allowed Enersis to reach levels of borrowings compatible with those of international companies, qualified suppliers of electric services classified as A or higher. With regard to Net Results from Investments, these rose by 109.9% from a profit of Ch$ 8,347 million to a profit of Ch$ 17,517 million, as a consequence of a greater profit on the investments in related companies and of a smaller loss from same, explained in the detail shown in the following pages. consolidated financial statements (cid:46)(cid:69)(cid:87)(cid:192)(cid:48)(cid:69)(cid:82)(cid:85)(cid:86)(cid:73)(cid:65)(cid:78)(cid:192)(cid:51)(cid:79)(cid:76)(cid:192)(cid:192) (cid:34)(cid:82)(cid:65)(cid:90)(cid:73)(cid:76)(cid:73)(cid:65)(cid:78)(cid:192)(cid:50)(cid:69)(cid:65)(cid:76) (cid:33)(cid:82)(cid:71)(cid:69)(cid:78)(cid:84)(cid:73)(cid:78)(cid:69)(cid:192)(cid:48)(cid:69)(cid:83)(cid:79) (cid:35)(cid:79)(cid:76)(cid:79)(cid:77)(cid:66)(cid:73)(cid:65)(cid:78)(cid:192)(cid:48)(cid:69)(cid:83)(cid:79) (cid:35)(cid:72)(cid:73)(cid:76)(cid:69)(cid:65)(cid:78)(cid:192)(cid:48)(cid:69)(cid:83)(cid:79) (cid:34)(cid:79)(cid:78)(cid:79)(cid:83)(cid:192)(cid:57)(cid:65)(cid:78)(cid:75)(cid:69)(cid:69)(cid:192)(cid:37)(cid:78)(cid:69)(cid:82)(cid:83)(cid:73)(cid:83)(cid:192) (cid:0)(cid:0) (cid:19) (cid:16) (cid:16) (cid:18) (cid:13) (cid:78) (cid:65) (cid:42) (cid:19) (cid:16) (cid:16) (cid:18) (cid:13) (cid:82) (cid:80) (cid:33) (cid:19) (cid:16) (cid:16) (cid:18) (cid:13) (cid:71) (cid:85) (cid:33) (cid:19) (cid:16) (cid:16) (cid:18) (cid:13) (cid:67) (cid:69) (cid:36) (cid:20) (cid:16) (cid:16) (cid:18) (cid:13) (cid:78) (cid:65) (cid:42) Furthermore, the high volatility of the local currencies against the US Dollar, in this case, the appreciation since January of this year, as can be noted from the above graph, has implied registering accounting losses of Ch$ 67,511 million in the year 2003 as a result of the adjustments on conversion to Chilean norms, as a consequence of the application of Technical Bulletin Nº 64. This, net of minority interests, amounts to a loss of Ch$ 40,786 million. This is closely related to the appreciations of the Brazilian Real and the Argentine Peso and their impact with respect to the structure of the monetary assets and liabilities. 230 With respect to the financial area, the year 2003 will be remembered as one of intense activity due to the multiple and successful operations carried out in order to strengthen the financial and equity situation of Enersis. Firstly, we must highlight that throughout the year, the Enersis Group carried out multiple operations for approximately US$ 7,000 million, as part of the Financial Strengthening Plan launched by the Company in the month of October, 2002. Financial Debt in Millions of US$ � These operations can be summarized in three large stages: Refinancing Operations Selective Divestment of Assets Capital Increase Total US$ 4,018 million US$ 757 million US$ 2,104 million US$ 6,879 million The refinancing stage was undertaken through various instruments such as syndicated loans, bond issues on local and overseas markets, prepayment of the Jumbo II credit and other less important operations. The moment to undertake this restructuring was also the most appropriate considering that interest rates were at a historic low whilst at the same time the improved perception of risk of the Enersis Group allowed for a prize on risk which was a lower spread on the new debt. Many of these operations took place during the year 2003, the last of these being the payment of US$ 149 million corresponding to the put undertaken by the holders of the 2026 Yankee Bonds. All these operations permitted not only a greater flexibility in the maturity of Enersis’ debt, resulting in a payment schedule more in accord with the Group’s generation of Cash flows, but also a reduction of the debt by US$ 2,573 million, significantly strengthening the financial situation of Enersis. The divestment of assets achieved the best expectations as the prices offered for the assets on sale were in the top level of those expected. With regard to the “replacement” of those assets divested, we would point out that the 172 MW of installed capacity corresponding to the Canutillar Plant that was sold will be easily surpassed by the 570 MW of installed capacity of the new Ralco plant coming on stream during the year 2004. This does not consider the 311 MW installed capacity of the new thermoelectricity plant in Ceará (CGTF), in the northeast of Brazil, in operation since January 2004, 49% owned by Enersis. These divestments also produced an effect on the comparative analysis of the results as of December 2002 versus December 2003, an important aspect to bear in mind. Divestments Río Maipo Canutillar Infraestructura 2000 Transm. Lines Total Cash Debt Discounted Total 170 174 50 110 504 33 - 220 - 253 203 174 270 110 757 Enersis / 2003 annual report With regard to the capital increase, this exceeded even the most optimistic expectations. In this respect, we must recall that when we launched this operation for US$ 2,000 million, the stock markets were still fairly depressed and some sectors were very skeptical about our possibilities of obtaining the participation of the shareholders in the largest capital increase in recent times in Latin America. In fact, the capital increase, conceived in three stages, permitted the Company to increase its equity base by more than US$ 2,104 million, a significant part of which corresponded to the capitalization of debts of US$ 1,219 million made by the controlling shareholder. Total Shares Authorized Ist Period Shares subscribed by ELE Shares subscribed by 3rd parties 24,382,994,488 Nº of Shares 14,406,840,511 7,706,423,549 ThUS$ 1,218,967 663,034 % Total 59.09% 31.61% Total shares subscribed 22,113,264,060 1,882,001 90.69% Exchange Local Bonds Exchange Bonds B1 and B2 Nº of Shares 893,612,466 ThUS$ 86,474 % Total 3.66% 2nd Period Shares subscribed by 3rd parties Nº of Shares 1,353,269,839 ThUS$ 135,552 % Total 5.55% Total shares subscribed 24,360,146,365 2,104,027 99.91% Aside from any internal considerations with respect to the success of the strengthening process carried out is the perception that the markets had of this corporate effort. In this sense, in the following graph, it is possible to appreciate how and by how much the risk perception of Enersis improved by way of the spread or prize on risk required from our debt instruments. (cid:76) (cid:69) (cid:85) (cid:65) (cid:54) (cid:192) (cid:82) (cid:65) (cid:48) (cid:192) (cid:70) (cid:79) (cid:5) (cid:192) 231 Furthermore, the improved risk perception, together with the recovery in demand for electricity in the majority of the areas under concession, is reflected in a sustained growth in the liquidity of Enersis’ shares, both on the local market and on the NYSE through the ADRs. The above is easily appreciated from the following graph. Average Daily Volume of Daily Transactions Santiago Stock Exchange Millions of Shares y r a u n a J y r a u r b e F h c r a M l i r p A y a M e n u J y l u J r e b m e t p e S t s u g u A r e b o t c O r e b m e v o N r e b m e c e D consolidated financial statements (cid:33)(cid:86)(cid:69)(cid:82)(cid:65)(cid:71)(cid:69)(cid:192)(cid:36)(cid:65)(cid:73)(cid:76)(cid:89)(cid:192)(cid:54)(cid:79)(cid:76)(cid:85)(cid:77)(cid:69)(cid:192)(cid:79)(cid:70)(cid:192)(cid:36)(cid:65)(cid:73)(cid:76)(cid:89)(cid:192)(cid:52)(cid:82)(cid:65)(cid:78)(cid:83)(cid:65)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83) (cid:46)(cid:69)(cid:87)(cid:192)(cid:57)(cid:79)(cid:82)(cid:75)(cid:192)(cid:51)(cid:84)(cid:79)(cid:67)(cid:75)(cid:192)(cid:37)(cid:88)(cid:67)(cid:72)(cid:65)(cid:78)(cid:71)(cid:69)(cid:192)(cid:8)(cid:46)(cid:57)(cid:51)(cid:37)(cid:9) (cid:8)(cid:17)(cid:192)(cid:33)(cid:36)(cid:50)(cid:192)(cid:29)(cid:192)(cid:21)(cid:16)(cid:192)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:83)(cid:9) Thousands of ADRs y r a u n a J y r a u r b e F h c r a M l i r p A y a M e n u J y l u J r e b m e t p e S r e b o t c O r e b m e v o N r e b m e c e D t s u g u A The improved risk perception, together with the strong liquidity of its paper, also provoked a sustained rise in the level of the prices of the shares and of the ADRs throughout the year 2003, particularly from the beginning of the month of May, date on which the strengthening process started to consolidate. (cid:54)(cid:65)(cid:82)(cid:73)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:192)(cid:73)(cid:78)(cid:192)(cid:48)(cid:82)(cid:73)(cid:67)(cid:69)(cid:192)(cid:79)(cid:70)(cid:192)(cid:51)(cid:72)(cid:65)(cid:82)(cid:69)(cid:192)(cid:86)(cid:69)(cid:82)(cid:83)(cid:85)(cid:83)(cid:192)(cid:33)(cid:36)(cid:50)(cid:83) 232 (cid:34)(cid:79)(cid:78)(cid:79)(cid:83)(cid:192)(cid:57)(cid:65)(cid:78)(cid:75)(cid:69)(cid:69)(cid:192)(cid:37)(cid:78)(cid:69)(cid:82)(cid:83)(cid:73)(cid:83)(cid:192) (cid:0)(cid:0) The financial elements described, i.e., the recovery in demand and the strengthening of the currencies, as is known, are essential factors required to obtain a better return on the investments in our sector of activities. The detail of the variations of the income accounts and the balance sheet described above, together with a greater analysis of the evolution of the main businesses are in the following pages, in the Comparative Analysis of the Financial Statements, of the different entries in the Income Statement, of the Balance Sheet and the Principal Cash Flows, compared to the information corresponding to December 31, 2002. Consequently, and even when the figures for the year 2003 did not manage to register all the positive events described, it is necessary to highlight them considering the impact that these will have, not only on the results for 2004 and subsequent years, but also on the financial strength of the Group as a whole, in the medium and long term. Enersis / 2003 annual report market in which the company participates The business activities of Enersis are performed through subsidiaries that operate in different businesses in the countries in which it they have a presence. The most important business activities for Enersis are Distribution and Generation of electricity. Distribution Business The following tables illustrate the key statistics in the different countries. Sales of Energy (GWh) ( * ) Loss of Energy (%) Clients (thousands) Clients / Employee Company Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Chilectra Edesur Edelnor Cerj Coelce Codensa Total 9,952 12,138 3,872 7,145 5,558 9,014 10,518 12,638 3,972 7,398 5,897 9,254 47,679 49,677 5.6% 11.6% 8.5% 22.6% 12.9% 10.3% 11.9% 5.6% 11.8% 8.4% 23.6% 13.5% 10.2% 12.2% 1,319 2,090 871 1,778 2,009 1,911 9,978 1,341 2,117 892 1,905 2,255 1,972 10,482 1,812 924 1,434 1,215 1,517 2,278 1,367 1,800 938 1,610 1,256 1,640 2,315 1,436 (*) These include sales to end consumers, tolls and inter-company sales. Generation Business Country Chile Argentina Peru Colombia Brazil Total Markets in which it participates SIC and SING SIN SICN SIN SICN Sales of Energy (GWh) Market Share Dec-2002 Dec-2003 Dec-2002 Dec-2003 233 18,344 7,897 4,158 14,639 3,591 48,629 18,681 9,259 4,443 14,900 3,770 51,053 46.1% 9.5% 22.8% 23.6% 1.0% 43.9% 11.9% 21.5% 21.6% 1.0% consolidated financial statements 1. analysis of the income statement The result achieved by the company as of December 31, 2003 is a profit of Ch$ 12,468 million, representing an increase of Ch$ 238,453 million with respect to the year before when the company made a loss of Ch$ 225,985 million. The variations in each item of the income statement are shown in the following table. Income Statement (Millions of CH$) Dec-02 Dec-03 Variation Dec 03-02 % Variation Dec 03-02 Operating Revenues Operating Expenses Operating Margin Selling and Administrative Expenses Operating Income Profit (Loss) in Related Companies Net Others Non Operating Income Net Financial Margin Positive Goodwill Amortization Monetary Exchange Differences Non Operating Income Income Tax Extraordinary Items Minority Interests Negative Goodwill Amortization 234 Net Income Ebitda (*) Earnings per Share 2,510,732 (1,747,351) 763,381 (225,410) 537,971 8,347 73,017 (363,194) (511,408) 5,014 (16,271) (804,495) (66,677) (22,599) 16,445 113,370 (225,985) 1,090,707 (27.26) 2,352,333 (1,651,732) 700,601 (169,503) 531,098 17,517 (50,448) (353,198) (53,228) (4,499) (6,054) (449,910) (41,571) (78,325) 51,176 12,468 1,010,295 0.41 (158,399) 95,619 (62,780) 55,907 (6,873) 9,170 (123,465) 9,996 458,180 (9,513) 10,217 354,585 25,106 22,599 (94,770) (62,194) 238,453 80,412 27.67 (6.3%) 5.5% (8.2%) 24.8% (1.3%) 109.9% (169.1%) 2.8% 89.6% (189.7%) 62.8% 44.1% 37.7% (576.3%) (54.9%) 105.5% (7.4%) 101.5% (*) Earnings Before Income Tax, Interest, Deprecation and Amortization of Extraordinary Items a. Net Operating Income: The Net Operating Income amounted to Ch$ 531,098 million for the period ended on December 31, 2003, reflecting a slight decrease of Ch$ 6,873 million, or 1.3%, with respect to the same period of the year 2002. This decrease is principally due to the effects of the sales and subsequent deconsolidation of the of the subsidiaries, Río Maipo and Infraestructura Dos Mil S.A. as, leaving aside this effect, the operating result would have risen by 2.2%. Furthermore, what occurred with the Chilean Peso this year, which appreciated 17.4%, moving from a rate of Ch$ 718.61 in December 2002 to Ch$ 593.8 in December 2003, had an important impact on the net operating income as, if we isolate this effect, the operating result would have grown by 12.4%. On the other hand, the net operating income of the subsidiaries CODENSA, CERJ, EDESUR and the service and engineering companies SYNAPSIS and CAM have compensated the fall in the results obtained in the subsidiaries ENDESA, EDELNOR, COELCE and Inmobiliaria Manso de Velasco. In the Generating business, Endesa Chile presented a net operating income of Ch$ 338,510 million as of December 2003, 3.2% lower than that obtained in the year 2002. This decrease in the net operating income that is mainly due to the results of the subsidiaries in Peru and Brazil, was partly compensated by the good performance in Argentina and Colombia. We should also point out the positive effect on the sales of energy in the region as a consequence of the large growth in demand for energy, the abundance of water in Argentina and the improved prices in Colombia. Furthermore, we should mention the reduction of 14.5% in the administrative and selling expenses to Ch$ 31,324 million in 2003, Ch$ 5,328 million less than in the same period of the year 2002. During 2003 sales amounted to 51,053 GWh, an increase of 5% over those of the same period of 2002. In Chile, the net operating income for the year 2003 amounted to Ch$ 155,260 million, falling by 10.0% with respect to the result for the year 2002. Nevertheless, if we compare this with the year 2002, excluding the effects of the deconsolidation following the divestment of Infraestructura Dos Mil S.A., the operating result in Chile would have risen by 3.2%. On the other hand, revenues from sales of energy grew by 5.0% despite the sale of the Canutillar Plant at the end of April 2003, compensated in part by higher costs of energy, greater costs of fuel due to an increase in the generation of thermoelectricity and by higher toll costs. In Colombia, the net operating income rose by 12.9% to Ch$ 85,984 million. This increase is due to the higher prices on the spot market as a result of the fall in the availability of water that has affected that country, to a better sales mix, to a slight increase in physical sales and to larger revenues from capacity during the period. Enersis / 2003 annual report In Argentina, the net operating income for the year 2003 increased by 154% with respect to the year 2002, amounting to Ch$ 32,313 million. This increase in the operating result is due to the good performance of the subsidiaries El Chacón and Central Cordillera whose operating results rose by Ch$ 12,568 and Ch$ 7,021 million, respectively. In El Chacón, the improved result is due to a greater production of energy during the year 2003 as a result of larger water supplies, added to better average sales prices on the spot market. In the case of Central Costanera, the increase in the result is explained principally by larger revenues in payment of power from contracts on the second interconnection line with Brazil that started being registered as of May, 2002. On the other hand, in Peru, the net operating income for the year 2003 fell by 13.9% with respect to the year 2002, amounting to Ch$ 61,296 million. The income from sales of energy decreased despite the increase in the physical sales of energy due to the effects of the appreciation of the Chilean Peso against the US Dollar during the period as well as to a higher cost of purchases of energy and transport resulting from the rise in physical sales. In Brazil, the net operating income of Cachoeira Dourada S.A. decreased by 78.7% to Ch$ 3,657 million principally as a result of the lower revenues on sales of energy due to lower average prices on the spot market and to the 10% reduction in the original contract with the distributor Celg as of September 2002 and an additional 10% reduction as of September, 2003. We point out that during the year 2003, the contract signed between our related company CIEN and Copel for the second interconnection line between Argentina and Brazil was successfully renegotiated. The definite agreement, with the approval of ANEEL, in combination with the negotiations undertaken on the contracts with the Argentine suppliers that support this contract, meant an equilibrium in the margins similar to the previous ones for CIEN, providing in addition the advantage of a smaller exposure to risk by diversifying in a better manner both the sales and the purchases of the associated energy. Furthermore, the subsequent modifications made in Argentina have only had a reduced effect on Costanera whose main participation in the business of exporting to Brazil is in the first interconnection line and not in the second, which was the subject of the modifications. Even so, in the contracts associated with the second interconnection line, Costanera maintains a power close to 200 MW in the short term that grows to 300 MW in the long term, to price levels and conditions that represent to it a very convenient alternative with respect to the internal Argentine market. The Distribution Business in Latin America continues showing important increases in physical sales and in the number of clients during the current year in respect of the previous one. Consolidated physical sales grew by 4.2% to 49,677 GWh, which is the equivalent to an increase of 1,998 GWh in sales in the period. The number of clients rose by 504 thousand, an increase of 5.1% to reach 10.5 million clients. In Chile, Chilectra presented a net operating income practically the same as last year, amounting to Ch$ 88,051 million as of December 2003. This is principally due to the increase of Ch$ 24,907 million in operating income related to the 5.7% rise in physical sales, compensated by higher operating expenses of Ch$ 22,822 million, the result of a greater purchase of physical energy and of an increase in administrative and selling expenses by Ch$ 2,226 million, owing to the increase in operating, maintenance and remunerations expenses. In Brazil, the subsidiaries Cerj and Coelce obtained net operating results amounting to Ch$ 24,513 and Ch$ 19,684 million, respectively. In the case of Cerj, this represents an improvement of Ch$ 3,904 million with respect to the previous year and for Coelce, a reduction of Ch$ 4,548 million compared to the same period of the year 2002. We point out that both companies registered a regulatory asset for an approximate amount of US$ 45 million (Cerj US$ 25 million and Coelce US$ 20 million) corresponding to the period between January 1 and March 1, 2002 with the object of recovering the economic-financial equilibrium of the concession contracts, to recover the losses of consumption observed during the period of rationing of energy that lasted from the year 2001 to March 1, 2002. Sales of energy rose by 253 GWh in Cerj and 339 GWh in Coelce, 3.5% and 6.1%, respectively. In Colombia, Codensa showed an increase of Ch$ 9,035 million in the net operating income that amounted to Ch$ 30,617 million which is explained principally by a higher unit value, the increase of 2.7% in physical sales and less administrative and selling expenses, mainly in operating and personnel expenses. In Peru, the subsidiary, Edelnor reduced its operating result by Ch$ 6,687 million provoked basically by a reduction in the unit sale margin due to the fall in tariffs and a lower sale of power. Physical sales of energy grew by 100 GWh going from 3,872 GWh to 3,972 GWh as of December 2003, and the losses of energy fell from 8.5% to 8.4% during this period. 235 In Argentina, Edesur showed an improvement in the net operating income of Ch$ 7,618 million, going from a loss of Ch$ 12,865 million in 2002 to a lower loss of Ch$ 5,247 million during the year 2003. This is principally the result of an improvement in demand for energy observed in the country that has provoked an increase in physical sales of 4.1% rising from 12,138 GWh in the year 2002 to 12,638 GWh in 2003. This meager result, despite the improvement, is principally due to the economic instability the country went through and that provoked a reduction in income for the service company due mainly to the freezing of the tariffs, to losses from the devaluation of the Argentine Peso and the increase in losses of energy through theft, rising from 11.6% in December 2002 and 11.8% in December 2003. The operating income and expenditure and the administrative and seling expenses of the subsidiaries of the Enersis Group for the periods ended in December 2003 and 2002 are shown below: Companies Endesa S.A. Chilectra S.A. Rio Maipo S.A. Edesur S.A. Edelnor S.A. Cerj Coelce Codensa S.A. Cam Ltda. Inmob. Manso de Velasco Ltda Synapsis Soluc. y Servicio Ltda Enersis Parent and Invest. Co. Adjustment on Consolidation December 2002 December 2003 Operating Income Operating Expences Admin.and Selling Expenses Net Operating Income Operating Income Operating Expences Admin.and Selling Expenses Net Operating Income 947,480 401,916 57,237 201,473 205,670 348,613 230,002 334,820 94,885 11,492 50,028 4,325 (377,209) (561,142) (281,512) (42,852) (183,447) (152,721) (306,380) (164,954) (280,417) (74,422) (6,037) (37,603) (1,097) 345,233 (36,652) (32,212) (4,009) (30,891) (19,729) (21,624) (40,816) (32,821) (7,994) (1,641) (6,178) (22,070) 31,227 349,686 88,192 10,376 (12,865) 33,220 20,609 24,232 21,582 12,469 3,814 6,247 (18,842) (749) 920,281 426,823 - 183,942 175,947 317,593 207,387 292,155 91,718 11,334 45,283 4,332 (324,462) (550,447) (304,334) - (161,166) (132,315) (282,155) (158,070) (244,654) (71,828) (10,501) (30,331) (1,130) 295,199 (31,324) (34,438) - (28,023) (17,099) (10,925) (29,633) (16,884) (6,151) (1,691) (6,214) (17,018) 29,897 338,521 88,051 - (5,247) 26,533 24,513 19,684 30,617 13,739 (858) 8,738 (13,816) 634 Total on Consolidation 2,510,732 (1,747,351) (225,410) 537,971 2,352,333 (1,651,732) (169,503) 531,098 consolidated financial statements Net Operating Income by Line of Business In the following table we show the operating income and expenditure by line of product for the period ended on December 31, 2003 and 2002: Negocio Generation Distribution Engineering & Real Estate Services Parent Company and Other Services Eliminations Totals Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Operating Revenues Coperating Costs Net Operating Income Administrative and Selling Expenses 906,504 (532,134) 374,370 (34,382) 896,228 (529,762) 366,466 (30,261) 1,779,732 (1,412,284) 367,448 (182,118) 1,603,848 (1,282,694) 321,154 (137,003) 52,468 (35,045) 17,423 (3,910) 35,387 (31,186) 4,201 (2,753) 149,237 (113,122) 36,115 (36,227) 141,333 (103,289) 38,044 (29,383) (377,209) 345,234 (31,975) 31,227 (324,463) 295,199 (29,264) 29,897 2,510,732 (1,747,351) 763,381 (225,410) 2,352,333 (1,651,732) 700,601 (169,503) Net Operating Income 339,988 336,205 185,330 184,151 13,513 1,448 (112) 8,661 (748) 633 537,971 531,098 236 b. Non Operating Income: The non operating income of the company rose by Ch$ 354,585 million, or 44.1%, from a loss of Ch$ 804,495 million in the year 2002 to a loss of Ch$ 449,910 in the year 2003. This is explained principally by the reduction in the amortization of the negative goodwill of the investments, after the write-offs in December 2002 of the entire negative goodwill of the investments in the companies in Argentina and Brazil; by the improved results obtained from the investments in related companies, specifically CIEN and by lower financial costs due to the reduction in the financial debt. This was partially compensated by the registration in 2003 of the losses from the conversion in accordance with Technical Bulletin Nº 64 of the subsidiaries in Argentina and Brazil, caused by the appreciation of the Brazilian Real against the US Dollar. Financial costs net of financial income show a reduction of Ch$ 9,996 million, falling from net costs of Ch$ 363,194 million as of December 2002 to net costs of Ch$ 353,198 million this year, a reduction of 2.8%. The decrease in these costs is the result of the reduction in debt and to the lower interest rates on the international markets with respect to the previous period. The decrease would have been much greater (13.5%) had there not been an acceleration in the amortization of the fees of Ch$ 39,095 million paid in relation to the loans that were cancelled in advance with resources obtained from the capital increase or were refinanced during the year 2003. The profits from investments in related companies increased by Ch$ 9,170 million or 109.9% rising from a profit of Ch$ 8.347 million in December, 2002 to a profit of Ch$ 17,517 million as of December, 2003. This was fundamentally due to the results of the related companies, particularly CIEN and GASATACAMA Generación Ltda. whose registered profits rose by Ch$ 3,839 million and Ch$ 4,843 million, respectively. The amortization of the negative goodwill on investments decreased by Ch$ 458,180 million, equivalent to a reduction of 89.6% with respect to the year 2002, amounting to Ch$ 53,228 million. The larger amortization in the previous year was the result of the deterioration of the negative goodwill of the investments in Argentina and Brazil which signified an accelerated amortization, in December 2002, of the entire negative goodwill held in the companies in those countries. The other non operating income and expenses reflect a negative variation of Ch$ 123,465 million, declining from a profit in 2002 of Ch$ 73,017 million to a loss of Ch$ 50,448 million as of December 2003. The main reasons that explain this variation in the results are detailed below: - An increase in losses of Ch$ 249,358 million deriving from the conversion adjustment to Chilean Norms, as a result of the application of Technical Bulletin Nº 64, principally of the subsidiaries in Brazil and Argentina. This is mainly the product of the appreciation of the Brazilian Real and the Argentine Peso against the US Dollar and its impact on the structure of the monetary assets and liabilities. - - - - - Increase in expenses on provisions for obsolescence and write-offs of assets of Ch$ 8,339 million. Increase in expenses on pension plans and UFIR taxes in Brazil by Ch$ 21,818 million. Losses on sale of materials and fixed assets of Ch$ 7,689 million. Ch$ 4,863 less profit on forward operations. Ch$ 6,551 million less in dividends from related companies. The above was partially compensated by: - - - - Profit before tax of Ch$ 89,285 million on sale of Río Maipo and Infraestructura 2000. Ch$ 68,171 million less in provisions on real estate and works projects in progress. Ch$ 8,117 million less in Tax Fines. Ch$ 4,812 less on losses on recalculation of Power on SIC. The price-level restatement and exchange differences reflect a net positive variation of Ch$ 704 million with respect to the previous year, rising from a loss of Ch$ 11,257 million as of December 31, 2002 to a loss of Ch$ 10,553 million in the year 2003. The above is principally due to the effects of the nominal appreciation of the Chilean Peso of 17.4% against the US Dollar as of December 31, 2003 in comparison with the nominal devaluation of 9.7% existing as of the same date of the previous year. These effects were compensated to a large extent by exchange insurance held by the company. Income and deferred tax expenses fell by Ch$ 25,106 million in comparison to last year, decreasing from Ch$ 66,677 million as of December 2002 to Ch$ 41,571 million this year. This is explained mainly by an increase of Ch$ 24,913 million in income tax expenses and a positive effect of Ch$ 50,019 million from deferred taxes. The larger income tax expense reflects the tax effect of Ch$ 16,285 million on the profit on the sale of Río Maipo, compensated by the reduced taxes for Cerj and Coelce. Enersis / 2003 annual report Extraordinary items show a reduction in the loss of Ch$ 22,599 million that corresponds to the tax for preserving democratic security imposed in the year 2002 by the Government of Colombia on all corporations established in Colombia. Amortizations of the positive goodwill of investments shows a decrease in the amortization of Ch$ 62,194 million reflecting the accelerated amortization carried out in December 2002 of the positive goodwill held in the companies established in Argentina and Brazil, partially compensated by the amortization of the positive goodwill generated by the investments made through the capitalization of the loan undertaken in the month of January 2003 in Cerj for Ch$ 34,517 million. Interest Rate Risk On a consolidated basis, as of September 30, 2003 12% of the total debt was expressed in variable terms whilst 88% was at fixed rates and secure. As of the close of December 31, 2003 the debt linked to variable rates represented 1% of the total debt whilst 99% was at fixed rates and secure. The company manages its interest rate risks by concentrating its debt structure on the long term with a suitable combination of debt at fixed rates and at variable rates. In the specific case of Argentina, most of the debts are tied to Libor interest rates. In the context of historic continuous falls in this rate, it was decided to maintain a high percentage of variable debt having taken advantage of this situation to arrange a significant reduction in financial costs. In Brazil, given that the tariffs are updated on the basis of a price index that is linked to the evolution of the local interest rate, it was decided to maintain the greater portion of the debt at variable interest rates. Exchange Risk The Company’s exposure to an exchange risk is derived from the assets and liabilities denominated in foreign currency, most of which in US Dollars. On a consolidated basis, as of the close of September 30, 2003 Enersis had 80% of its total debt expressed in US Dollars. Bearing in mind the US$/ Ch$ forward position, the weight of this debt in US$ was reduced to 79%. As of December 31, 2003, 73% of the debt was expressed in US Dollars. Considering the US$/Ch$ hedging policy mentioned below, the percentage of the debt expressed in US Dollars is 76%. The reason behind the largest part of our debt being denominated in US Dollars is the fact that an important proportion of our revenues is directly or indirectly related to the US Dollar. Thus, the tariffs of the majority of the countries in which we have operations are tied to a significant extent to the evolution of the US Dollar, particularly in Chile and Peru. In countries where the indexation to the US Dollar is lower, companies borrow a greater proportion of their loans in local currency. With respect to the operating revenues in our Generating subsidiaries, in the case of Central Costanera in Argentina, a large portion of its income comes from exports to Brazil and these contracts are indexed to the US Dollar. On the other hand, El Chocón’s contracts, though expressed in US Dollars, are currently being paid in Argentine Pesos. In Brazil, Cachoeira Dourada does not have tariffs indexed to the US Dollar and its revenues are in local currency, indexed to fluctuations in inflation. In Colombia the contracts are at spot and at short term that mainly follow the variations of the US Dollar exchange rate. In Chile and Peru, the tariff process and the contracts are indexed to changes in the US Dollar rate. In Argentina, Costanera has benefited from the contracts expressed in US Dollars for the exports through its related company, CIEN, which minimize the risks of further devaluations in that country. On the other hand, in Brazil, given that both the income and the expenses are expressed in local currency, with no indexation to foreign currencies, and that the company has no significant debt denominated in US Dollars (which would produce financial costs in US Dollars), there is no important risk with respect to the exchange rate. In Chile, operating costs have hardly been affected by the variations in the rate of exchange in view of the high volume of hydroelectricity generation in these last two years. With respect to our overseas subsidiaries, the same thing occurs, as they are principally hydroelectricity generating plants. Although Costanera in Argentina is a thermoelectricity generator, the supplies of natural gas are currently invoiced in pesos. In the case of the Distribution companies, in Argentina the tariffs for the companies that distribute electric power under a federal concession, amongst them Edesur, are contractually established in US Dollars and indexed to the inflation rate in the United States. However, the Emergency Law promulgated in January 2002 established the tariffs in Pesos and these have been kept frozen. For this reason, the companies have had to absorb, without any form of compensation whatsoever, the effects of devaluation and inflation. Within the process of renegotiation underway between the government and the companies, conditions have to be established under which the tariffs will be ruled in future. In Brazil, tariffs are indexed to the General Market Price Index. In Colombia, the Added Distribution Value (ADV) is readjusted in accordance with the Producer Price Index every time that there is a variation of more than 3% in any of its components. For further information, we show below operating revenues and expenses grouped by country. 237 Net Operating Income by Country Periods ended as of December 31, 2002 and 2003 (In millions of Chilean Pesos) Country Chile Argentina Brazil Perú Colombia Totals Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Dec-02 Dec-03 Operating Income % consolidated / r Operating Expenses % consolidated / r Operating Income % consolidated / r Administrative and Selling Expenses % consolidated / r 807,457 32% (484,752) 28% 322,705 42% (68,754) 30% 854,422 36% (544,413) 33% 310,009 44% (59,953) 35% 300,610 12% (265,048) 15% 35,562 5% (32,734) 15% 292,342 12% (231,198) 14% 61,144 9% (30,000) 18% 630,533 25% (504,235) 29% 126,297 17% (60,706) 27% 550,604 23% (464,369) 28% 86,235 12% (38,645) 23% 295,351 12% (162,042) 9% 133,309 17% (22,711) 10% 249,728 11% (142,505) 9% 107,223 15% (20,400) 12% 476,781 19% (331,273) 19% 145,508 19% (40,514) 18% 405,236 17% (269,247) 16% 135,989 19% (19,917) 12% 2,510,732 2,352,332 (1,747,351) (1,651,732) 763,381 700,600 (225,410) (168,915) Net Operating Income 253,960 250,056 2,828 31,144 65,591 47,590 110,598 86,823 104,994 116,072 537,971 531,685 consolidated financial statements 238 The exchange risk exposure is currently handled on a consolidated basis, taking into consideration the portion of this risk that our Chilean subsidiaries have not covered. The Company’s policy is to hedge between 70% and 85% of the booked exposure to exchange risks. For the specific case of Chile, the exchange risk exposure depends on the fluctuation of the exchange rates at which the Company’s assets and liabilities are maintained. For accounting purposes, our results are also affected considering the contents of Technical Bulletin Nº 64. In accordance with this Chilean accounting regulation, debts in foreign currency that were utilized to finance investments in countries with an “unstable currency” are matched to their corresponding investment and the variations in the US$/Chilean Peso rate on those matched debts are not reflected by entries in the Income Statement. The existing Ch$/US$ exchange exposure is controlled by means of the use of financial derivatives, basically US Dollar/Ch$ Forwards, with which the exchange risk is covered. On a consolidated basis, as of the close of December 31, 2003 the Company had US$/Ch$ forward contracts for US$ 166 million in sale contracts whilst as of September 30, 2003 the total was US$ 31 million in purchase contracts. This decrease in the purchase position is due to a smaller exposure to the variations in the US Dollar on the debts expressed in that currency. In Argentina, the generating subsidiaries have their debts expressed in US Dollars, given that their operating cash flows are largely related to that currency. Edesur has most of its debts in US Dollars because before the emergency law, its tariffs were indexed to that currency. Since then, the restrictions imposed and the volatility of the local financial market have prevented any form of hedging of the exchange risk. Thus, to date, the exposure to the US Dollar remains. On the other hand, in Brazil, our generating subsidiary is not exposed to the US Dollar as it has a very small debt and this is expressed in Brazilian Reales. In the distribution subsidiaries, the companies originally borrowed from third parties in local currency. Only Cerj received inter-company financing in US Dollars. Others We give below a detail of the defaults by Enersis or its subsidiaries that, if not rectified 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 by one of their respective subsidiaries to pay a single debt of US$ 30 million or more (debt considered individually, not jointly) on the date the corresponding payment should be made (be it on the maturity date or by acceleration). • Bankruptcy or suspension of payments by ENERSIS, Endesa-Chile or one of their respective subsidiaries. • Judicial sentences against ENERSIS S.A., Endesa-Chile or one of their respective subsidiaries that imply an obligation for a joint amount equal or superior to US$ 30 million and judicial resolutions whose contents are different to the payment of a monetary obligation against ENERSIS S.A., Endesa-Chile or any of their respective subsidiaries that could have a substantial adverse effect on the consolidated accounts of ENERSIS S.A. or Endesa-Chile, whichever the case. • Governmental action by virtue of which all or a substantial part of the property or assets of ENERSIS S.A., Endesa-Chile or one of their subsidiaries are nationalized, embargoed or expropriated or government action that could impede the continuity of operations or an important part of them, of ENERSIS S.A., Endesa-Chile or one of their respective subsidiaries. • Default on the corresponding contract clauses and that are not corrected within the grace period established, such as commitments to maintain determined debt ratios and coverage of interest payments. In most credits - and in general terms - the expression subsidiary refers to those relevant ones both in Chile and abroad. Borrowings that may be called in with respect to each default and the respective creditor subsidiary are detailed as follows: Bank Borrowings As is customary in most bank credit contracts and on 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 subsidiary, 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. Amounts in millions of US Dollars as of December 31, 2003 Enersis Endesa Total Syndicated 500 284 784 Total 500 264 784 Enersis Effect on Parent Company 1. Debt Default > = US$MM 30 (1) 2. Bankruptcy o Suspension of Payments 3. Substantially Unfavorable Sentences 4. Government Action (2) Events of potentially active default in subsidiaries that could generate a cross default by the Parent Company US$ 500 million The grounds noted only have an effect on the Parent Company if they occur in a so-called Relevant Subsidiary. Defaults in other Subsidiaries have no effect on the Parent Company. The Relevant Subsidiaries are classified on the basis of the financial statements for the latest tax year under U.S. GAAP rules. On the basis of the financial statements as of December 31, 2002, the Relevant Subsidiaries of ENERSIS are; Endesa Chile, CERJ, CONO SUR, CHILECTRA, C.H. Betania S.A. Endesa Effect on Parent Company 1. Debt Default > = US$MM 30 (1) 2. Bankruptcy o Suspension of Payments 3. Substantially Unfavorable Sentences 4. Government Action (2) (1) On individual debts (2) Nationalization, expropriation, dissolution, etc. US$ 284 million The grounds noted only have an effect on the Parent Company if they occur in a so-called Relevant Subsidiary. Defaults in other Subsidiaries have no effect on the Parent Company. The Relevant Subsidiaries are classified on the basis of the financial statements for the latest tax year under U.S. GAAP rules. On the basis of the financial statements as of December 31, 2002, the Relevant Subsidiaries of ENDESA are; C. E. Cono Sur, Endesa Chile Internacional, Betania S.A., Pehuenche S.A., Pangue S.A., C.E. Tarapacá, Edegel S.A.A., Centrais Elétricas Cachoeira Dourada S.A., EMGESA, Lajas Inversora. Enersis / 2003 annual report International Yankee Bonds Amounts in millions of US Dollars as of December 31, 2003 Enersis Endesa Chile Total Yankee Bonds 901 2,016 2,917 Events of potentially active default in subsidiaries that could generate a cross default by the Parent Company Enersis 1. Debt Default > = US$MM 30 (1) 2. Initiation of Bankruptcy Proceedings Endesa 1. Debt Default > = US$MM 30 (1) 2. Initiation of Bankruptcy Proceedings (1) Only on individual debts of Issuer or of a Subsidiary Local Bonds Default on a debt of Enersis or of a Subsidiary. The Subsidiaries of Enersis with debts with third parties of over US$ 30 million are: CERJ, Endesa, Betania, Celta, Central Costanera, Coelce, Edegel, Emgesa, Endesa Chile Internacional and Pehuenche. In Enersis or in any Significant Subsidiary of Enersis. On the basis of the financial statements as of December 31, 2002, the Significant Subsidiaries of Enersis are; CERJ, Endesa and Investluz. Default on a debt of Endesa or of a Subsidiary. The Subsidiaries of Endesa with debts with third parties of over US$ 30 million are: Betania, Celta, Central Costanera, Coelce, Edegel, Emgesa, Endesa Chile Internacional, Pehuenche and San Isidro. In Endesa or in any Significant Subsidiary of Endesa. On the basis of the financial statements as of December 31, 2002, the Significant Subsidiaries of Endesa are; Betania, Cachoeira Dourada, CESA, Cono Sur, Edegel, Emgesa, Endesa Argentina, Endesa Chile Internacional, Hidroinvest, Lajas Inversora, Pangue and Pehuenche . 239 Amounts in millions of US Dollars as of December 31, 2003 Enersis Endesa Chile Total Local Bonds 57 467 524 The ENERSIS bonds have a cross default only with its own debt that exceeds 3% of the assets. Events of Potentially Active Default in Subsidiaries (would cause a cross default in the Parent Company) Endesa Chile 1. Insolvency or unable to pay its debts 2. Debt Default > = UFMM 2 3. Initiation of Bankruptcy Proceedings Relevant Subsidiaries Cono Sur ( (in brackets amounts affected US$MM) Yes ($434) no Yes ($434) Subsidiaries Rest of Subsidiaries Yes ($34) no no consolidated financial statements 2. analysis of the balance sheet The Total Assets of the Company show a decrease of Ch$ 2,005,113 million with respect to the same period of the year before. This is principally due to the following: Assets (Millions of Ch$) Current Assets Fixed Assets Other Assets Total Assets Dec-02 1,226,686 9,978,253 1,532,921 12,737,860 Dec-03 1,146,004 8,096,360 1,490,383 10,732,747 Variation (80,682) (1,881,893) (42,538) (2,005,113) % Variation (6.6%) (18.9%) (2.8%) (15.7%) • Decrease of Ch$ 1,881,893 million in Fixed Assets, equivalent to a fall of 18.8%, as a result of the sale of the Canutillar Plant for Ch$ 121,191 million, the sale of transmission lines for Ch$ 30,702 million, the deconsolidation following the sale of Río Maipo for Ch$ 40,479 million and of Infraestructura 2000 for Ch$ 251,118 million. These were also affected by the effect of the exchange rates on the fixed assets of the foreign companies as a result of the application of the methodology of taking the non-monetary assets in historic US Dollars in the subsidiaries located in unstable countries, in accordance with Technical Bulletin Nº 64. • Current Assets decreased by Ch$ 80,682 million due principally to the fall by Ch$ 180,293 million in short-term accounts receivable from related companies explained basically by the transfer to long-term of the loan to Atacama Finance for Ch$ 128,185 million, a reduction of Ch$ 59,413 million in other current assets, principally due to a reduction of Ch$ 62,605 million in Investment Forwards compensated by a larger volume of purchases of financial instruments with a 240 resale agreement, for Ch$ 35,484. These reductions were partially compensated by the increase of Ch$ 109,171 million in term deposits, by the increase of Ch$ 30,790 million in sundry debtors and Ch$ 26,501 million in deferred taxes. • Other long term assets present a reduction of Ch$ 42,538 million explained principally by a reduction of Ch$ 58,701 million in the net negative and positive goodwill of investments as a result of the amortization for the period, the decrease in investments in related companies and in other companies of Ch$ 15,894 and Ch$ 27,601 million respectively, mainly due to the effect of the exchange rate in Chile and the reduction of Others by Ch$ 60,532 million. The above was partially compensated by the increase in long-term accounts receivable from related companies following the transfer of the loan of Ch$ 128,185 million to Atacama Finance. The total liabilities of the Company show a decrease of Ch$ 2,005,113 million with respect to the same period of the year before. This is mainly due to: Liabilities (Millions of Ch$) Current Liabilities Long-Term Liabilities Minority Interests Equity Total Liabilities Dec-02 2,172,887 5,458,228 4,091,109 1,015,636 Dec-03 1,127,151 3,707,922 3,349,282 2,548,392 Variation Dec-03-02 (1,045,736) (1,750,306) (741,827) 1,532,756 12,737,860 10,732,747 (2,005,113) % Variation Dec 03-02 (48.1%) (32.1%) (18.1%) 150.9% (15.7%) Current liabilities decreased by Ch$ 1,045,736 million or 48.1% explained principally by the decrease of Ch$ 445,619 million in the short term portion of the long term obligations with banks, as a result of the advanced payments of loans and the refinancing of the debt with banks that was concluded during this year 2003, a reduction of Ch$117,143 million in the short term obligations with banks and a decrease of Ch$ 432,541 million in obligations with the public (bonds). Long term liabilities fell by Ch$1,750,306 million, or 32.1%, mainly as a result of the reduction of Ch$ 998,090 million in accounts payable to related companies following the capitalization of the debt with Elesur, a reduction of Ch$ 874,357 million in obligations with banks and Ch$ 52,458 million in accounts payable and a reduction of Ch$ 41,822 million in other long term liabilities, partially compensated by an increase of Ch$ 180,471 in obligations with the public and a rise of Ch$ 62,931 million in provisions. Minority interests fell by Ch$ 741,827 million as a result of the increase in the participation in Cerj and Costanera, to the deconsolidation of Infraestructura 2000 and to the reduction of the net worth of the overseas subsidiaries controlled in US Dollars as per Technical Bulletin Nº 64. With regard to equity, we should point out that this rise by $1,532,756 million with respect to December 2002. This variation is explained principally by the subscription of shares for a value of $1,468,991 million during the year 2003 in relation to the capital increase and the increase of Ch$ 125,620 million in the overprice for the capitalization of the debt of Elesur and the B1 and B2 series bonds. It also increased by Ch$ 12,468 million due to the booking of the profit for the period. Enersis / 2003 annual report Ratio Liquidity Debt Return Unit Dec-02 Dec-03 Variation Dec-03-02 % Variation Dec 03-02 Current Liquidity Acid Test (1) Working Capital Debt Ratio Short-Term Debt Long-Term Debt Financial Expenses Coverage (2) Return on Equity Return on Assets Times Ch$MM Times Times % % Times % % 0.56 0.56 (946,201) 1.49 0.28 0.72 2.43 -22.25% -1.77% 1.02 0.96 18,853 0.82 0.23 0.77 2.40 0.49% 0.12% 0.46 0.40 965,054 (0.67) (0.05) 0.05 (0.03) 0.23 0.02 82.1% 71.4% (102.0%) (45.0%) (17.9%) 6.9% (1.2%) (102.2%) (106.8%) (1) Current Assets net of Stocks and Pre-paid Expenses (2) We utilized EBITDA divided by Financial Expenses The liquidity ratio as of December 2003 was 1.02 that reflects an improvement of 82.1% with respect to the same date of the previous year. This improvement is the result of the cash flows collected from the capital increase of US$ 920 million, the sale of Río Maipo for US$170 million and the sale of Canutillar for US$174 million that permitted the anticipated payment of short-term obligations with banks as of December 2002 as well as the transfer to long term of the obligations with banks that were in the short term following the first refinancing in the month of May 2003. The debt ratio as of December 31, 2003 was 0.82 times. When compared to the same period of the year 2002, there is a decrease of 0.67 points. The reduction is due principally to the capitalization of the debt from Elesur, to the capital increase on the part of the minority shareholders and to the effect of the exchange rate, given that a large part of the debt is indexed to the US Dollar. On the other hand, the return on equity closed at 0.49%. As of the same date of the previous year, this was –22.25%. This improvement in the return is due to the increase in the profit for the period with respect to the loss in the previous year. The return on assets rose from –1.77% as of December 2002 to 0.12% as of December 2003. This was basically the result of the rise in the profit for the period and to the decrease in total assets. Operating activities generated a positive cash flow of Ch$ 574,477 million, Ch$ 59,583 million less than during the same period of last year. This cash flow is comprised mainly of the profit of Ch$ 12,467million for the period, plus the net charges to results of Ch$ 676,678 million that do not represent cash flow, that correspond principally to the Depreciation of Ch$ 396,416 million for the period, write-offs and provisions of Ch$ 54,402 million, amortization of Ch$ 53,228 million on the negative and positive goodwill on investments and Ch$ 153,256 million for other charges that do not represent cash flow, the main item of this being Ch$ 68,424 million for the effect of the conversion to Technical Bulletin N° 64, increased by the rise in liabilities that affect the cash flow by Ch$ 43,011 million. The above was partially compensated by the increase of Ch$ 54,665 million in assets that affect operating cash flows, principally due to the increase in sales debtors in Argentina and Brazil, to Ch$ 51,176 in amortizations of positive goodwill and of Ch $29,777 million in other credits that do not represent cash flow, of which Ch$ 8,377 million correspond to the positive effect of the conversion of the overseas subsidiaries. Financing activities produced a negative cash flow of Ch$ 435,757 million, explained basically by loan repayments of Ch$ 2,128,072 million, dividend payments for Ch$ 80,795 million, payments of obligations with the public for Ch$ 487,071 million and other disbursements on investments for Ch$ 116,031 million. The above is partially compensated by the issue of shares for Ch$ 546,465 million, loans granted for Ch$ 1,022, 599 million and the placement of bonds for Ch$ 828,121 million. Investment activities generated a net positive cash flow of Ch$ 88,375 million that corresponds principally to the sale of Fixed Assets, Canutillar and Transmission Lines for Ch$ 160,760 million, to the sale of investments for Ch$ 121,827 million in Río Maipo and to other income from investments for Ch$ 49,788 million, partially compensated by the incorporation of fixed assets for Ch$ 258,786 million, with the most important being the investment Endesa is making in the Ralco Plant that for this period amounts to Ch$ 131,140 million and other disbursements for Ch$ 6,888 million. 241 consolidated financial statements 3. principal cash flows During the period, the company generated a net cash flow of Ch$ 227,095 million, which is comprised of the following items: Cash Flow (Millions of Ch$) From Operations From Financing From Investments Dec-02 634,060 (287,890) (340,248) Dec-03 574,477 (435,757) 88,375 Variation Dic-03-02 (59,583) (147,867) 428,623 %Variation Dic 03-02 (9.4%) 51.4% (126.0%) Net Cash Flow for the Period 5,922 227,095 221,173 3,734.8% Information on Fixed Asserts by Company (Millions of Ch$) Disbursements on Acquisition of Assets Dec-03 Dec-02 Depreciation Fixed Assets Company 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. Enersis Parent Company Consolidated Total 242 136,207 19,948 6,128 21,624 23,857 34,746 48,622 28,753 317 445 447 - 321,094 131,140 24,977 - 25,026 18,840 23,084 19,157 15,844 528 - 190 - Dec-02 197,818 12,810 1,908 66,540 17,495 55,521 42,505 60,673 1,094 222 1,380 1,051 Dec-03 179,489 12,758 - 52,409 15,705 45,062 37,169 50,414 1,152 228 944 1,085 396,415 258,786 459,016 4. book value and market value of the assets With regard to the more important assets, we mention the following: The value of the items in fixed assets have been adjusted in accordance with the accounting criteria established by the Chilean Superintendency of Securities and Insurance in its Circulars Nº 550 and 556 issued in 1985. In the case of the foreign company, Inversiones Distrilima S.A., the value of the fixed assets were adjusted in accordance with the exception criteria indicated in Technical Bulletin Nº 45 issued by the Chilean College of Accountants, the norm in force at the time the investment was made and which was not modified by Technical Bulletin Nº 51 that replaced it. and issued by the Superintendency of Securities and Insurance, as of the close of the financial statements for the 2002 period, the company has evaluated the recoverability of the assets related to its investments, applying the accounting principles generally accepted in Chile which are Technical Bulletins Nº 33 for fixed assets and in accordance with the indications of Technical Bulletin Nº 56, the company has applied NIC 36 for the positive or negative goodwill values of those investments. Assets expressed in foreign currency are shown at the exchange rate as of the close of the period. Depreciation is calculated on the updated value of the goods in accordance with the years of useful life remaining for each item. Investments in financial instruments with repurchase/resale agreements are shown at their purchase value plus the proportion of the interest calculated on the implicit rate of each operation. Investments in related companies are valued at their proportional equity value. In the case of foreign companies, this methodology has been applied on the basis of the financial statements prepared in accordance with the norms established in Technical Bulletin Nº 64 of the Chilean College of Accountants and intangible values have been adjusted by price-level restatement and are amortized according to the norms indicated in Technical Bulletin Nº 55 of the Chilean College of Accountants. In accordance with Official Circular Nº 150 dated January 31, 2003 Accounts and bills receivable from related companies are classified according to their short and long-term maturities. The operations are adjusted to equal conditions similar to those that are normally applied in the market. In summary, assets are valued according to generally accepted accounting principles and norms and to instructions issued on this matter by the Superintendency of Securities and Insurance explained in Note 2 of the Financial Statements. Enersis / 2003 annual report unconsolidated financial statements I N D E X 2 4 6 U N C O N S O L I D A T E D B A L A N C E S H E E T S 2 4 8 U N C O N S O L I D A T E D I N C O M E S T A T E M E N T 2 4 9 S T A T E M E N T S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y 2 5 0 S T A T E M E N T S O F U N C O N S O L I D A T E D C A S H F L O W S 2 5 2 N O T E S T O T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 2 7 8 U N C O N S O L I D A T E D S I G N I F I C A N T E V E N T S 2 8 2 R A T I O A N A L Y S I S O F T H E U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 243 unconsolidated financial statements REPORT FROM THE INSPECTORS OF ACCOUNT In accordance with the stipulations of Law Nº 18,046 on Limited Liability Stock Companies and in compliance with the mandate conferred by the Ordinary General Meeting of Shareholders held on March 31 2003, we have proceeded to examine the Financial Statements of Enersis S.A. for the period between January 1 and December 31 of the year 2003. Our task was centered on the verification, on a selective basis, of the match between the amounts included in the financial statements and the official regis- ters of the Company and for this purpose we compared the figures presented in the general ledger against the grouping and classification spreadsheets, in order to subsequently verify that these amounts, which represent the totals of the accounts under one item, coincided with those included in the financial sta- tements, We have no observations on this review. 244 Marcelo Villaseca Inspector of Accounts Luis Bone Inspector of Accounts Santiago, January 26, 2004 Enersis / 2003 annual report 245 unconsolidated financial statements unconsolidated balance sheets (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003) 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 infraestructure Machinery and equipment Other assets Technical appraisal Accumulated depreciation 246 Total property, plant and equipment, net OTHER ASSETS: Investments in related companies Goodwill, net Negative goodwill, net Long-term receivables Amounts due from related companies Intangibles Accumulated amortization Other assets Total other assets TOTAL ASSETS The accompanying notes are an integral part of these financial statements As of December 31, 2002 ThCh$ 2003 ThCh$ 424,171 4,645,095 744 4,770,740 189,818,602 9,344,985 24,185 13,840,925 5,053,069 332,918 1,152,306 737 1,730,919 125,426,886 14,481,845 54,080 27,820,558 16,881,389 227,922,516 187,881,638 20,798,254 2,260,279 785,804 33,182 (10,781,577) 20,798,233 2,301,896 798,232 33,176 (11,628,486) 13,095,942 12,303,051 2,316,302,919 795,599,874 (760,544) 480,134 505,640,490 1,437,928 (351,586) 53,141,309 2,172,567,483 734,738,083 (606,765) 475,380 440,541,432 1,437,928 (423,618) 26,726,999 3,671,490,524 3,375,456,922 3,912,508,982 3,575,641,611 Enersis / 2003 annual report LIABILITIES AND SHAREHOLDERS´ EQUITY CURRENT LIABILITIES: Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable 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 baks and financial institutions Bonds payable Amounts payable to related companies 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 Deficit of subsidiaries in development stage Total shareholders´ equity As of December 31, 2002 ThCh$ 2003 ThCh$ 269,236,251 11,087,782 212,195 354,521 227,515 35,693,493 5,553,310 203,922 16,842 200,478 4,099,460 789,754 4,071,574 111,612 173,004 241,059 33,960,434 21,642,293 133,370 16,284,563 135,718 8,468,298 326,885,769 86,011,679 247 834,665,515 672,442,019 1,018,223,736 2,014,151 4,240,426 38,401,268 296,900,000 627,728,756 - 2,502,841 4,700,566 9,405,879 2,569,987,115 941,238,042 758,720,279 33,703,758 47,348,383 406,835,727 (225,985,568) (4,986,481) 2,227,711,340 159,323,362 (25,671,685) 176,016,726 12,467,863 (1,455,716) 1,015,636,098 2,548,391,890 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 3,912,508,982 3,575,641,611 unconsolidated financial statements unconsolidated income statement (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003) OPERATING INCOME: Sales Cost of Sales GROSS PROFIT Administrative and selling expenses OPERATING LOSS NON-OPERATING INCOME : 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 NON-OPERATING RESULT LOSS BEFORE INCOME TAXES Income taxes 248 Years ended December 31, 2003 2002 ThCh$ ThCh$ 4,324,336 (1,096,812) 4,332,016 (1,130,291) 3,227,524 3,201,725 (22,047,860) (17,018,287) (18,820,336) (13,816,562) 57,665,112 72,606,599 22,602,401 (81,134,551) (108,967,612) (145,596,315) (18,249,143) 1,596,506 (18,323,195) 39,627,790 113,734,272 99,732,781 (71,649,236) (49,863,556) (142,566,879) (23,109,000) (4,426,198) 30,533,147 (217,800,198) (7,986,879) (236,620,534) (21,803,441) 9,581,493 12,635,903 LOSS BEFORE AMORTIZATION OF NEGATIVE GOODWILL (227,039,041) (9,167,538) Amortization of negative goodwill NET INCOME (LOSS) FOR THE YEAR 1,053,473 21,635,401 (225,985,568) 12,467,863 Enersis / 2003 annual report unconsolidated statements of changes in shareholders’ equity (Expressed in thousands of historical Chilean pesos, except as stated) Paid-in capital ThCh$ Additional paid-in capital ThCh$ Deficit of Net income Other reserves ThCh$ Retained subsidiaries in (loss) for earnings development stage the year ThCh$ ThCh$ ThCh$ Total ThCh$ As of January 1, 2002 729,328,347 32,398,114 25,517,158 350,149,143 867,381 40,926,246 1,179,186,389 Transfer of prior year income to retained earnings Changes in equity of affiliates Deficit of subsidiaries in the development stage Cumulative translation adjustment - - - - - - - - - - - 20,596,914 40,926,246 - - - Price-level restatement of capital 21,879,850 971,943 765,515 11,732,261 - - (5,830,512) - 26,021 (40,926,246) - - - - - - (5,830,512) 20,596,914 35,375,590 Net loss for the year - - - - - (223,748,087) (223,748,087) As of December 31, 2002 751,208,197 33,370,057 46,879,587 402,807,650 (4,937,110) (223,748,087) 1,005,580,294 As of December 31, 2002 (1) 1,509,928,476 67,073,815 94,227,970 809,643,377 (9,923,591) (449,733,655) 2,021,216,392 As of January 1, 2003 Capital increase 751,208,197 33,370,057 46,879,587 402,807,650 (4,937,110) (223,748,087) 1,005,580,294 1,471,844,920 125,881,577 - - - - 1,597,726,497 Transfer of prior year loss to retained earnings Changes in equity of affiliates Deficit of subsidiaries in the development stage Cumulative translation adjustment - - - - - - - - (11,432,599) - (61,587,469) - - - - (1,302,667) - Price-level restatement of capital 4,658,223 71,728 468,796 1,790,596 (49,372) - - - - (11,432,599) (1,302,667) (61,587,469) 6,939,971 - (228,581,520) 4,833,433 223,748,087 - 249 Net income for the year - - - - - 12,467,863 12,467,863 As of December 31, 2003 2,227,711,340 159,323,362 (25,671,685) 176,016,726 (1,455,716) 12,467,863 2,548,391,890 (1) Restated in thousands of constant Chilean pesos as of December 31, 2003. The accompanying notes are an integral part of these consolidated financial statements unconsolidated financial statements statements of unconsolidated cash flows (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003.) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the year GAIN (LOSSES) FROM SALES OF ASSETS: Gain on sales of investments 250 CHANGES (CREDITS) TO INCOME WICH DO NOT REPRESENT CASH FLOWS: Depretiation 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 changes to income which do not represent cash flows CHANGES IN ASSETS WHICH AFFECT CASH FLOWS (INCREASE) DECREASE: Trade receivables 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 in other accounts payable associated with non-operating results Net decrease in value added tax and other similar taxes payable Years ended December 31, 2003 2002 ThCh$ ThCh$ (225,985,568) 12,467,863 - (87,827,096) 1,051,655 72,032 (72,606,599) 81,134,551 108,967,612 (1,053,473) (1,596,506) 18,323,195 (14,088,548) 21,319,737 1,084,945 72,032 (113,734,272) 71,649,236 49,863,556 (21,635,401) 4,426,198 (30,533,147) (292,285) 53,184,071 419,149 30,664,160 (443,759) 17,781,809 1,119,595 42,271,931 (9,581,494) 9,869,159 (681,995) (5,769,787) (27,408,737) (12,635,903) 1,507,622 4,714 Negative net cash flows used in operating activities (10,381,407) (88,238,341) Enersis / 2003 annual report CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of shares Loans obtained Proceeds from bond issuances Loans obtained from related companies Other sources of financing 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 Negative net cash used in financing activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of long-term investments Proceeds from loans obtained from related companies Long-term investments Loans granted to related companies Other receipts from investments Other loans granted to related companies Other investment disbursements Net cash provided by investing activities NET CASH FLOW FOR THE YEAR Years ended December 31, 2002 ThCh$ 2003 ThCh$ - 66,700,429 - 56,916,083 - (137,362) (77,459,982) (7,120,809) (99,900,769) (22,394,079) - - 546,464,851 367,500,129 219,384,315 - 17,710,486 (70,757) (1,054,710,719) (85,430,527) (4,467,535) (60,430,647) (10,831,654) (60,304,504) (83,396,489) (125,186,562) 1,142 257,502,017 (16,899,455) (164,491,518) 29,776,143 (1,592,098) (9,151,081) 161,428,334 53,071,377 - (5,788,156) 1,635,460 - - 95,145,150 210,347,015 1,367,254 (3,077,888) 251 EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (231,430) (506,154) NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR 1,135,824 (3,584,042) 3,933,442 5,069,266 5,069,266 1,485,224 unconsolidated financial statements notes to the financial statements (Restated for general price-level changes and expressed in thousands of constant Chilean pesos as of December 31, 2003, except as stated) 1. description of business Enersis S.A. (the “Company”) is registered in the Securities Register under N°0175 and is regulated by the Chilean Superintendence 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. 2. summary of significant accounting policies a. Periods covered Currency Symbol used 2002 2003 These financial statements cover the years ended December 31, 2002 and 2003. 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. 252 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. United States dollar (Observed) Euro Unidad de Fomento (UF) US$ € UF Convenience translation to U.S. dollars Ch$ 718.61 752.55 16,744.12 Ch$ 593.80 744.95 16,920.00 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, 2003 of Ch$593.80 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 These financial statements include assets, liabilities and result of the agency established in 1996 by Enersis S.A. in Cayman Islands. Time deposits are presented at original placement plus accrued interest and UF indexation adjustments at each year end. c. Basis of presentation The 2002 financial statements and its corresponding notes are presented updated and restated by 1.0% 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, 2003 and 2002. The effects of these off-the-books restatements are shown in Note 19. 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: 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$1,051,655 and ThCh$1,084,945 in 2002 and 2003, respectively. Enersis / 2003 annual report i. Intangibles o. Accrued vacation expense Intangibles are mainly easements, and amortized in accordance with Technical Bulletin N°55 of the Chilean Association of Accountants. In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on the accrual basis. 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 invested. 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, discounted at 9.5%. Investments in foreign affiliates are recorded in accordance with Technical Bulletins No.42 and 64 of the Chilean Association of Accountants. q. Revenue recognition The Company has evaluated at December 31, 2002 and 2003, 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. 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. k. Goodwill and negative goodwill r. Financial derivative contracts 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. As of December 31, 2003 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. The Company has evaluated at December 31, 2002 and 2003, 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”. As a result of this evaluation, in 2003 no adjustments have been determined that affect the book values of these assets. In 2002, was write-off amounted to ThCh$53,647,938 for this concept. 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, 2003 and 2002, the Company recorded current tax expense according to the tax laws. 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 and N°1560 issued by the SVS, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates estimated to be in effect at the time of reversal of the temporary differences that gave rise to them. 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. s. Software Software has acquired by the Company and its subsidiaries as 253 computing packages and is amortized over a 3-year term. t. Research and development costs During 2002 and 2003 there have been no expenses under this caption which require footnote disclosure as required by Circular No. 981 of SVS dated December 28, 1990. 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. Cost of share issue Costs incurred to date associated with issuing and placing shares are recorded according to the provisions of Circular No. 1370 of 1998 of the Superintendence of Securities and Insurance. The amounts under these items are deducted from the premium account. Breakdown of the costs is shown in Note 22. w. Reclassification Do not reclassification was made at December 31, 2002. unconsolidated financial statements 3. change in accounting principles There were no changes in accounting principles during 2003 that would affect comparison with the prior year financial statements. 4. transactions with related companies Balances of accounts receivable and payable are as follows at December 31, 2002 and 2003: 254 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. Edelnor S.A. Companhia de Eletricidade do Río de Janeiro Luz de Bogotá S.A. Edesur S.A. Luz de Rio Ltda. Cerj Overseas Codensa S.A. Empresa Eléctrica de Colina Ltda. Endesa S.A. (Chile) 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 S.A. (Celta) Autopista Los Libertadores S.A. Endesa S.A. (España) Pehuenche S.A. Autopista del Sol S.A. Chispa Uno S.A. Agencia Endesa Chile S.A. Luz Andes Ltda. Empresa Eléctrica Pangue S.A. Empresa Eléctrica Pehuenche S.A. Aguas Santiago Poniente S.A. Compañía Eléctrica San Isidro S.A. As of December 31 , Short-term Long-term 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ 147,194,952 36,143 37,180 4,619,430 3,890,208 2,223,214 9,727 1,246 69,814 21,759 25,193 64,694 17,391 1,134,225 14,845 742 29,612,065 21,305 493 59,801 43,018 80,615 344 32,194 2,551 325,343 - 3,397 282 244,395 53 53 31,877 69,051,205 51,997 34,188 388,704 - - - - - - 1,749,367 9,295 45,401,901 359,057,882 - 57,118 17,803 20,612 52,928 14,228 4,588,969 12,145 304 48,703,885 21,433 488 1,627 - 81,017 341 28,724 - 509,546 683 - 279 - - - - - - - - - 41,442,944 36,289,805 - - - - - - - - - - - - - - - 23,447,958 - - - - - 93,226,443 - - - - - 311,609,667 - - - - - 35,705,322 - - - - - - - - - - - - - - - - - - - - - - - 53 30,000 - Total 189,818,602 125,426,886 505,640,490 440,541,432 Enersis / 2003 annual report b. Notes and accounts payable: Company As of December 31 , Short-term Long-term 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ Chilectra S.A. 2,253,613 673,377 13,395,831 Synapsis, Soluciones y Servicios IT Ltda. 6,270,335 5,150,703 - 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. 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. Chilectra Internacional Chilectra S.A.(Cayman Islands Agency) Endesa Inversiones Generales S.A. 6,175,519 18,111,851 2,337,984 245,994 8,455,637 - 7,255,154 - 5,245,144 1,617,152 1,327,436 67,256 17,035 39,261 25,050 74,172 13,936 - 13,264 - - - - - 11,580,351 - 997,244,777 19,591 19,397 414 62 380 49 37,121 89,156 - 61 376 41 30,370 89,813 - - - - - - - Total 35,693,493 33,960,434 1,018,223,736 - - - - - - - - - - - - - - - - - - - 255 unconsolidated financial statements c. Effects in income (expense) in each year are as follows: Company 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. 256 Endesa S.A. (España) Elesur S.A. Endesa S.A. (Chile) Endesa Inversiones Generales S.A. By agency intermediation: Chilectra S.A.(Cayman Islands Agency) Luz de Río Enersis Internacional Endesa Chile Internacional Cerj Overseas Endesa Agencia Total Nature of Transaction Income (expense) 2002 ThCh$ 2003 ThCh$ Loans 13,112,158 10,163,758 Property rental 4,324,335 4,332,016 Services Loans Property rental Loans Services Materials 4,033,984 4,675,198 138,562 (376,861) 348,957 129,723 (18,235) (577,288) (379,254) (175,559) 192,849 (12,720) Property maintenance (418,486) (342,850) Loans Services Loans Services Services Services Loans Loans Services (451,135) (559,645) (285,749) 519,776 (374,729) (596,661) - - 1,790,327 3,168,666 325,343 - (43,842,919) (9,267,916) 2,857,101 1,739,648 721,753 722,024 Property rental (685,204) (929,205) Loans Loans Loans Loans Loans Loans 24,788,831 23,020,412 2,441,563 1,799,353 1,502,421 438,826 2,848,973 283,349 2,886 - 498,550 371,226 13,967,748 38,030,404 Enersis / 2003 annual report 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 Chilectra S.A. Account receivable Chilectra S.A.(Cayman Islands Agency) Account receivable Luz de Rio Ltda. Account receivable 5. deferred income taxes a. Income taxes payable as of each year-end are as follows: Credits for absorbed profits PPM, donations, training expense Total income taxes recoverable Tax for sale of investments Income tax prior year Total income tax payable Type Due Date Currency Capital Interest Rate 2005 2007 2007 US$ US$ US$ 156,999,734.86 524,722,090.72 46,919,950.58 7.56% 7.01% 6.21% As of December 31, 2002 ThCh$ 9,213,787 131,198 9,344,985 - 16,842 2003 ThCh$ 14,336,947 144,898 14,481,845 16,284,563 - 16,842 16,284,563 257 b. The Company has losses of ThCh$112,077,596 and ThCh$201,568,234 for the years ended December 31, 2002 and 2003, respectively. tax c. The balance of taxed retained earnings and related tax credits are as follows: Year 2002 2003 As of December 31, Loss ThCh$ - 199,692,930 Credit ThCh$ - - unconsolidated financial statements 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 2003 as follows: As of December 31, 2002 Asset Liability As of December 31, 2003 Asset Liability Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Unearned income Vacation accrual Depretiation Severance indemnities Other events Provisions Bond discount Deferred charges Differences between the financial and tax value of Rio Maipo S.A. Tax losses Complementary account, net 34,081 99,160 - - 73,558 391,189 - - - - - - 95,025 - - - - - - - - 5,549 156,053 567,430 - - 1,849,339 104,716 - 6,953 1,497,310 1,045,799 23,072 71,560 - - 85,073 376,238 - - - - - - 94,017 - - - - - 58,798 - - 5,721 109,977 1,110,662 - - 1,735,726 40,694 - 1,219 1,178,615 1,991,081 - 15,458,979 - - - - 1,489,974 - (2,964) - - - 28,548,291 - (168,666) - - - - - (1,482) - - (152,752) Total 16,056,967 95,025 2,216,042 4,335,451 29,104,234 94,017 1,283,676 4,794,583 e. Income tax expense for the years ended December 31, 2002 and 2003 is as follows: 258 Income tax provision Effect on deferred tax assets or liabilities for the year Benefits for tax losses Amortization of complementary accounts Total As of December 31, 2002 ThCh$ 2003 ThCh$ - - 9,579,046 2,447 (16,284,564) 387,873 28,548,291 (15,697) 9,581,493 12,635,903 Enersis / 2003 annual report 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 Fair value - derivative contracts Unrealized loss derivative contracts Other Total (*) See Note 10. 7. property, plant and equipment La composición del saldo del activo fijo al cierre de cada período es la siguiente: Buildings and infraestructure Machinery and equipment Other assets transit Technical appraisal of buildings and infraestructure Total fixed assets Accumulated depreciation at beginnig of year Buildings and infraestructure Machinery and equipment Other assets in transit As of December 31, 2002 ThCh$ 2003 ThCh$ 11,900 818,952 34,681 2,727,484 975,334 - 353,026 131,692 8,420,565 1,967,742 34,674 4,646,734 666,529 149,153 809,537 186,455 5,053,069 16,881,389 As of December 31, 2002 ThCh$ 2003 ThCh$ 259 20,798,254 2,260,279 785,804 33,182 20,798,233 2,301,896 798,232 33,176 23,877,519 23,931,537 (8,958,214) (716,603) (33,492) (9,427,976) (858,322) (234,441) Total accumulated depretiation at beginning of year (9,708,309) (10,520,739) Accumulated depreciation at beginning of year- technical appraisal of buildings and infraestructure Technical appraisal Depreciation of the year Total accumulated depreciation at end of year Total property, plant and equipment, net (21,613) (22,802) (21,613) (22,802) (1,051,655) (1,084,945) (10,781,577) (11,628,486) 13,095,942 12,303,051 unconsolidated financial statements 8. investment in related companies a. Investments as of each year-end are as follows: Related Companies Number of shares Percentage owned Shareholder’s equity of investee Net income of investees Equity in income Share of equity Unrealized income Investment book value Empresa Nacional de Electricidad S.A. Chilectra S.A. Enersis Internacional Luz de Bogotá S.A. 2002 % 59.98% 98.24% 4,919,488,794 359,602,436 - 100.00% 15,529,421,297,372 Companhia de Eletricidade do Río de Janeiro 766,367,324,842 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. 143,996,758 15,681,945,734 101,684,374 29,462,253 95,363,337 - Central Geradora Termelétrica Fortaleza S.A. (*) 20,246,908 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. Luz de Río Ltda. Constructora El Gobernador Ltda. Codensa S.A. - - 210 - - 1 - - 1 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% 43.24% - - 2003 % 59.98% 98.24% 100.00% 25.71% 26.47% 16.02% 15.61% 20.43% 2002 ThCh$ 2003 ThCh$ 1,444,941,674 1,492,669,037 425,908,659 426,495,495 2002 ThCh$ (9,412,247) (31,311,681) 2003 ThCh$ 78,130,908 51,469,555 352,192,877 295,713,345 39,332,609 (36,689,385) 606,535,104 487,492,327 (4,557,123) 4,206,442 585,356,719 446,403,953 (9,102,554) (98,773,475) 737,116,149 575,959,954 8,287,192 (27,101,386) 361,127,824 286,769,700 (200,235,743) (8,682,013) 415,421,881 324,606,610 4,663,076 (15,265,033) 100.00% 40,590,431 41,841,947 (10,035,583) 15.93% 0.00% 48.82% 99.99% 99.99% 15.00% 0.00% 0.00% 0.10% 0.00% 0.00% 0.00% 174,521,754 132,003,816 13,202,015 22,849,917 44,134,413 25,283,631 8,847,200 3,231,944 218,464 79,898 829,875 3,666,178 - 11,844,565 33,459,443 35,091,832 10,221,225 - - - 813,133 - 8,061,728 4,439,999 (1,893,847) (106,692) (19,097) 579,366 - 22,557,357 1,306,753 8,857,512 - - 6,856,001 5,652,106 - - - 670,021 - 21,296,187 22,255,006 269,895 376,991 1,019,559,638 827,256,794 (6,722,511) 18,020,379 260 Total (*) These subsidiaries were in the development stage for the years shown and accordingly, were not consolidated under Chilean GAAP 38,878,108 (36,689,385) 2002 ThCh$ (5,645,553) (30,760,547) (1,171,831) (1,854,687) 1,328,009 (31,256,488) 952,874 (10,035,579) 2,103,081 11,695,613 - 4,823,694 3,069,892 (284,077) (106,692) (19,097) 580 9,754,748 - - 2003 ThCh$ 46,863,646 50,563,611 1,081,657 (26,142,322) (4,342,952) (1,355,249) (3,119,328) 1,306,753 1,411,002 6,855,391 5,651,541 - - - - - - 1 - 670 2002 ThCh$ 866,689,475 418,412,009 352,192,877 155,966,178 119,269,128 118,121,638 56,371,492 84,889,255 40,590,417 27,801,316 22,562,567 21,546,421 25,281,382 8,846,315 484,792 218,464 79,897 830 1,585,409 32 5 2003 ThCh$ 895,316,792 418,988,515 295,713,343 125,355,171 118,149,493 92,296,626 44,764,304 66,331,637 41,841,933 21,028,208 - 16,334,900 35,088,709 10,220,203 - - - - 813 34 4 2002 ThCh$ 2003 ThCh$ (3,237,317) (1,369,663) (7,202,800) (1,660,402) 2002 ThCh$ 866,689,475 418,412,009 352,192,877 155,966,178 119,269,128 118,121,638 56,371,492 84,889,255 40,590,417 27,801,316 22,562,567 21,546,421 22,044,065 7,476,652 484,792 218,464 79,897 830 1,585,409 32 5 2003 ThCh$ 895,316,792 418,988,515 295,713,343 125,355,171 118,149,493 92,296,626 44,764,304 66,331,637 41,841,933 21,028,208 - 16,334,900 27,885,909 8,559,801 - - - - 813 34 4 (8,527,952) 42,085,036 2,320,909,899 2,181,430,685 (4,606,980) (8,863,202) 2,316,302,919 2,172,567,483 b. In accordance with Technical Bulletin N°64 of the Chilean Association of Accountants, at December 31, 2002 and 2003, 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, 2003 the corresponding amounts are as follows: Acquisitions c. Investments The investments made by Enersis S.A. during the year ended December 31, 2003, are detailed as follows: Company Country of origin Investment Reporting currency Liability ThCh$ ThCh$ Central Termeléctrica Fortaleza S.A. Luz de Río Ltda. Inversiones Distrilima S.A. Edesur S.A. Argentina 158,628,263 US$ 65,944,546 Brasil 118,149,493 US$ 184,321,716 Companhia de Eletricidade do Río de Janeiro Luz de Bogotá S.A. (Codensa S.A.) Investluz S.A. (Coelce) Brasil 44,764,304 Colombia 128,145,242 US$ US$ 192,073,884 80,914,406 Total 449,687,302 523,254,552 Total d. Capital increase in Cerj On November 15, 2002, at an Extraordinary Meeting Nº16, the Board of Directors of Enersis approved a capital increase in its subsidiary Cerj in Brazil. Such increase will be done in a direct and indirect way through its subsidiaries Chilectra and Luz de Río in order to maintain its participation percentage in Cerj. As of December 31, 2002 ThCh$ 2003 ThCh$ 15,635,180 62,084 1,202,192 16,899,456 - - - - Enersis / 2003 annual report Companhia de Eletricidade do Río de Janeiro 766,367,324,842 585,356,719 446,403,953 (9,102,554) (98,773,475) 15,529,421,297,372 606,535,104 487,492,327 (4,557,123) 4,206,442 Empresa Nacional de Electricidad S.A. 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. Endesa Market Place Enersis Energía de Colombia S.A. Enersis de Argentina S.A. Synapsis Colombia S.A. Luz de Río Ltda. Constructora El Gobernador Ltda. Codensa S.A. Total Central Geradora Termelétrica Fortaleza S.A. (*) 20,246,908 Compañía Americana de Multiservicios Ltda. Synapsis, Soluciones y Servicios IT Ltda. 2002 % 59.98% 98.24% 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% 43.24% 4,919,488,794 359,602,436 143,996,758 15,681,945,734 101,684,374 29,462,253 95,363,337 210 - - - - - 1 - - 1 2003 % 59.98% 98.24% 100.00% 25.71% 26.47% 16.02% 15.61% 20.43% 15.93% 0.00% 48.82% 99.99% 99.99% 15.00% 0.00% 0.00% 0.10% 0.00% 0.00% 0.00% 100.00% 40,590,431 41,841,947 (10,035,583) 174,521,754 132,003,816 13,202,015 737,116,149 575,959,954 8,287,192 (27,101,386) 361,127,824 286,769,700 (200,235,743) (8,682,013) 415,421,881 324,606,610 4,663,076 (15,265,033) 22,849,917 44,134,413 25,283,631 8,847,200 3,231,944 218,464 79,898 829,875 3,666,178 - 11,844,565 - 33,459,443 35,091,832 10,221,225 - - - 8,061,728 4,439,999 (1,893,847) (106,692) (19,097) 579,366 813,133 670,021 - 22,557,357 1,306,753 8,857,512 6,856,001 5,652,106 - - - - - - - - 21,296,187 22,255,006 269,895 376,991 1,019,559,638 827,256,794 (6,722,511) 18,020,379 (*) These subsidiaries were in the development stage for the years shown and accordingly, were not consolidated under Chilean GAAP Related Companies Number of shares Percentage owned Shareholder’s equity of investee Net income of investees Equity in income Share of equity Unrealized income Investment book value 2002 ThCh$ 2003 ThCh$ 1,444,941,674 1,492,669,037 425,908,659 426,495,495 2002 ThCh$ (9,412,247) (31,311,681) 2003 ThCh$ 78,130,908 51,469,555 2002 ThCh$ (5,645,553) (30,760,547) 2003 ThCh$ 46,863,646 50,563,611 - 100.00% 352,192,877 295,713,345 39,332,609 (36,689,385) 38,878,108 (36,689,385) (1,171,831) (1,854,687) 1,328,009 (31,256,488) 952,874 (10,035,579) 2,103,081 11,695,613 - 4,823,694 3,069,892 (284,077) (106,692) (19,097) 580 9,754,748 - - 1,081,657 (26,142,322) (4,342,952) (1,355,249) (3,119,328) 1,306,753 1,411,002 - - 6,855,391 5,651,541 - - - 670 - 1 - 2002 ThCh$ 2003 ThCh$ (3,237,317) (1,369,663) (7,202,800) (1,660,402) 2002 ThCh$ 866,689,475 418,412,009 352,192,877 155,966,178 119,269,128 118,121,638 56,371,492 84,889,255 40,590,417 27,801,316 22,562,567 21,546,421 25,281,382 8,846,315 484,792 218,464 79,897 830 1,585,409 32 5 2003 ThCh$ 895,316,792 418,988,515 295,713,343 125,355,171 118,149,493 92,296,626 44,764,304 66,331,637 41,841,933 21,028,208 - 16,334,900 35,088,709 10,220,203 - - - 813 - 34 4 2002 ThCh$ 866,689,475 418,412,009 352,192,877 155,966,178 119,269,128 118,121,638 56,371,492 84,889,255 40,590,417 27,801,316 22,562,567 21,546,421 22,044,065 7,476,652 484,792 218,464 79,897 830 1,585,409 32 5 2003 ThCh$ 895,316,792 418,988,515 295,713,343 125,355,171 118,149,493 92,296,626 44,764,304 66,331,637 41,841,933 21,028,208 - 16,334,900 27,885,909 8,559,801 - - - 813 - 34 4 (8,527,952) 42,085,036 2,320,909,899 2,181,430,685 (4,606,980) (8,863,202) 2,316,302,919 2,172,567,483 261 On December 10, 2002, the Extraordinary General Shareholders’ Meeting of the Company Cerj agreed to an increase in the authorized capital for an approximate total amount of MUS$105.000. On January 6, 2003, the companies Endesa Internacional, Endesa Internacional Energía, Chilectra S.A. have written over 100% of the rights of share subscription of the company Cerj and part of the rights of Luz de Río S.A. to Enersis. A capital increase was made on January 10, 2003 through the issuance and the subscription of 770.833.333.333 ordinary shares, at a value of R$0,48 by lot of thousand shares totaling the MUS$100.000 approved by the Meeting and increasing the authorized capital of the Company to MUS$259.085. With this operation, the percentage of direct and indirect participation held by Enersis S.A. and branches increased from 58.1631% to 71.8148%. e. Sale of Río Maipo The purchasing contract between Enersis and Compañía General de Electricidad – Distribución was signed on April 30, 2003 for the entire share participation held by Enersis (356.078.645 shares) in the Company Río Maipo. The attribution to the Company CGE Distribución was made by the Board of Directors of Enersis on March 28, 2003, with a bid of US$170 million for the shares held by Enersis and was ratified later at an Extraordinary Shareholders Enersis’ Meeting dated March 31, 2003. The signature of the purchasing contract marked the end of the process of attribution of the Company Río Maipo, which is part of the strategic plan of Enersis approved on October 4, 2002. The effects for the sale of the shares are detailed in the Note 18a. f. Merger of Inmobiliaria Manso de Velasco Limitada and Sociedad Agrícola El Gobernador Limitada Partners of these companies agreed by public deed dated December 31 2003 to a merger by absorption of Inmobiliaria Manso de Velasco into Constructora el Gobernador Ltda., which, for all legal intents and purposes, became the successor, changing its name as of that date to Inmobiliaria Manso de Velasco Limitada. As a result of this merger, Inmobiliaria Manso de Velasco Ltda. was dissolved, and its partners received rights in the continuing corporation. g. Dissolution of investment vehicles. During 2003, the companies Enersis Energía de Colombia S.A. and Enersis de Argentina S.A. were dissolved. unconsolidated financial statements 9. goodwill and negative goodwill In accordance with current standards, recognition has been given to the a. excess of purchase price over the equity in net assets acquired (goodwill) in the purchase of shares as of December 31, 2002 and 2003, as follows: Company Empresa Nacional de Electricidad S.A. Distrilec Inversora S.A. Chilectra S.A. Inversiones Distrilima S.A. Compañía Eléctrica del Río Maipo S.A. Empresa Distribuidora Sur S.A. Companhia de Eletricidade do Río de Janeiro Investluz S.A. Luz de Bogotá S.A. As of December 31, 2002 2003 Amortization ThCh$ Net balance ThCh$ Amortization ThCh$ Net balance ThCh$ (43,387,863) (4,626,121) (6,272,762) (1,515) (580,158) (4,175,834) (49,026,109) (632,903) (264,347) 674,318,980 (43,387,862) 630,931,117 - - - 107,276,026 18,180 10,329,890 - - - (6,272,763) (1,239) 101,003,264 13,635 - - - - - - - - 3,656,798 (201,692) 2,790,067 Total (108,967,612) 795,599,874 (49,863,556) 734,738,083 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, 2002 and 2003 as follows: 262 Company Amortization Net balance Amortization Net balance ThCh$ ThCh$ ThCh$ ThCh$ As of December 31, 2002 2003 Companhia de Eletricidade do Río de Janeiro (*) 1,019,455 - 21,593,916 - Inversiones Distrilima S.A. Synapsis Soluciones y Servicios IT Ltda. 18,550 15,468 (617,459) (143,085) 26,017 15,468 (479,150) (127,615) Total 1,053,473 (760,544) 21,635,401 (606,765) (*) According to the provisions of Circular 368 of the Superintendence of Securities and Insurance, the corporation has amortized higher quarterly installments due to the revaluation of Cerj, caused by the capital increase in January 2003. 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 at December 31, 2002, 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$53,647,938, which is included in goodwill and negative goodwill amortization in the income statement. Enersis / 2003 annual report 10. others Other assets as of each year-end are as follows: Deferred commissions on foreign currency loans Deferred expenses collar contracts Post-retirement benefits Bond discount Fair value - derivative contracts Unrealized loss derivative contracts As of December 31, 2002 ThCh$ 545,968 5,316,341 41,916 8,835,815 8,646,895 29,754,374 2003 ThCh$ 7,751,524 3,882,337 7,171 6,933,029 589,688 7,563,250 Total 53,141,309 26,726,999 11. due to banks and financial institutions Currency US$ Other foreign U.F. Ch$ As of December 31, 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ 2002 ThCh$ 2003 ThCh$ Financial Institution ABN Amro Bank Dresdner Bank Dresdner Bank (swap) 465,821 83,762,158 458,168 - - - Banco Bilbao Vizcaya Argentaria S.A. (swap) 252,304 197,439 SAN PAOLO IMI S.p.A. Caja de Ahorros y Monte de Piedad de Madrid, Caja Madrid - - 118,463 118,463 Banco BBVA Mizuho Corporate Bank, Ltd. Banco HSBC JP Morgan - Chase (swap) 1,461,868 - 10,933,205 253,121 - - - - Banco Santander Central Hispano 105,236,964 197,438 Banco Santander Central Hispano (swap) 251,225 Bank of América Bank of Tokio - Mitsubishi Deutsche Bank 29,789,185 - 36,372,232 118,463 - 39,488 Total 269,236,251 789,754 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 465,821 83,762,158 458,168 263 - - - 252,304 197,439 - - 118,463 118,463 1,461,868 - 10,933,205 253,121 - - - - 105,236,964 197,438 251,225 29,789,185 - 36,372,232 118,463 - 39,488 269,236,251 789,754 Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2002 % 2003 % 100.00 100.00 - - 100.00 100.00 unconsolidated financial statements 12. long-term portion of debt due to banks and financial institutions Financial Institution Currency but within but within but within but within After 10 years long-term interest long-term After 1 year After 2 year After 3 year After 5 year Years to maturity Average annual Total Total 2 years ThCh$ 3 years ThCh$ 5 years ThCh$ 10 years years Thch$ ThCh$ portion ThCh$ rate portion- 2002 % ThCh$ ABN Amro Santander Central Hispano BBVA BBVA Banco Santander Central Hispano S.A. The Bank of Tokyo-Mitsubishi, Ltd., New York Branch SAN PAOLO IMI S.p.A. Caja de Ahorros y Monte de Piedad de Madrid, Caja Madrid Deutsche Bank AG, New York Branch Banco Bilbao Vizcaya Argentaria S.A. US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - - - - - - - - - - - - - 74,225,000 44,535,000 44,535,000 44,535,000 14,845,000 74,225,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 72,579,610 290,318,440 108,869,415 362,898,050 74,225,000 3.42% 44,535,000 44,535,000 3.42% 3.42% 44,535,000 14,845,000 74,225,000 3.42% 3.42% 3.42% - - - - - - Total - - 296,900,000 - 296,900,000 834,665,515 13. other current liabilities Other current liabilities at each year-end are as follows: 264 As of December 31, Forward contract obligations Swap Enersis bonds-rate and currency 2002 ThCh$ 352,925 2,293,515 2003 ThCh$ - - Unrealized gain on fair value of forward contract 4,602 149,153 Fair value - derivative contracts Swap collar rate contract - 5,667,236 1,448,418 2,651,909 Total 4,099,460 8,468,298 Enersis / 2003 annual report 14. bonds payable a. Details of the current portion of bonds payable is as follows at each year-end: Instrument Series Face value outstanding ThCh$ Currency Interest Rate Yankee Bonds Yankee Bonds Yankee Bonds Yankee Bonds II Bono N° 269 Bono N° 269 Total 1 2 3 1 B-1 B-2 - - - - - - US$ US$ US$ US$ U.F. U.F. 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% b. Details of the long-term portion of bonds payable is as follows at each year-end: Maturity Date Dec-06 Dec-16 Dec-26 Dec-14 Jun-09 Jun-22 As of December 31, 2002 ThCh $ 1,210,264 1,514,290 578,822 - 7,677,871 106,535 2003 ThCh $ 1,024,305 1,281,618 2,802 1,532,747 152,759 77,343 11,087,782 4,071,574 Instrument Series Yankee Bonds Yankee Bonds Yankee Bonds Yankee Bonds II Bono N° 269 Bono N° 269 Total 1 2 3 1 B-1 B-2 Face value outstanding ThCh$ 300.000.000 350.000.000 150.000.000 350.000.000 40.135 1.935.000 Currency Interest Rate Maturity Date US$ US$ US$ US$ U.F. U.F. % 6,90% 7,40% 6,60% 7,38% 5,50% 5,75% Dec-06 Dec-16 Dec-26 Dec-14 Jun-09 Jun-22 As of December 31, 2002 2003 ThCh$ 217,738,830 254,028,635 108,869,415 - 49,526,236 42,278,903 ThCh$ 178,140,000 207,830,000 509,480 207,830,000 679,076 32,740,200 672,442,019 627,728,756 265 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, 2002, 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 1 300 1 150 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. In November 2003, these series were voluntarily exchanged for shares in connection with the capital increase. The holders converted ThCh$63,656,586 into 893,612,466 first issue shares. Underwritten amounts were determined by experts. Capitalized amounts were ThCh$46,968,180 for the B1 series and ThCh$7,028,064 for the B2 series. unconsolidated financial statements As of December 31, 2003 2002 ThCh$ ThCh$ 1.452.720 561.431 1.949.798 553.043 ii. Yankee Bonds During 2002 and 2003 there were no debt write-offs. On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: b. Long-term accruals: Accrued expenses included in long term liabilities as of each year-end Series 1 2 3 Total amount In US$ 300,000,000 350,000,000 150,000,000 Years to maturity are as follows: 10 20 30 Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders has a pre-redemption option in year seven, which was exercised by nearly all holders in November 2003 for US$149,142,000. iii. Yankee Bonds II On November 24 2003, the Corporation, through its Cayman Islands Agency, issued and placed Yankee Bonds on the American market for US$350 million. This placement was made in a single Series, whose features are as follows: Series Total amount in US$ Years to maturity Stated annual interest rate 1 350.000.000 10 7,375% Interest is paid on a semi-annual basis and principal is due upon maturity. 266 iv. 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, 2003 amounts to ThCh$6,933,029 (ThCh$8,835,815 in 2002), are included in “Other assets” and ThCh$666,529 (ThCh$975,334 in 2002) are included in “Other current assets”. Severance indemnities Post-retirement benefits Total 2.014.151 2.502.841 16. severance indemnities Include employee severance indemnities, calculated in accordance with the policy described in Note 2n, post-retirement benefits and others. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Payments during the year As of December 31, 2002 ThCh$ 2003 ThCh$ 1.254.243 659.792 (461.315) 1.438.337 900.050 (388.589) Sub-total 1.452.720 1.949.798 Post-retirement benefits 561.431 553.043 15. accrued expenses Total 2.014.151 2.502.841 a. Short-term accruals: Accrued expenses included in current liabilities as of each year-end are as follows: As of December 31, 2003 2002 ThCh$ ThCh$ Negative equity of investments Profit sharing and other employee benefits Commission banks provision Contracts collar expeneses provision Notes receivable provision - 2.301.186 - 3.252.124 11.142.793 2.037.818 1.448.873 5.732.628 1.280.181 Total 5.553.310 21.642.293 (*) Provision for ownership in negative equity of Luz de Rio Limitada and Endesa Market Place for ThCh$10,887,229 and ThCh$225,564 respectively. Enersis / 2003 annual report 17. shareholders’ equity a. Paid capital The Extraordinary General Meeting of Shareholders of Enersis held on March 31st 2003 approved a capital increase of about US$2,000 million. The issue was registered in the Securities Register on May 23 2003 under No. 686 for Ch$1,473,225,403,563 pesos, divided into 24,382,994,488 shares. The operation was structured as follows: 1) First preferential underwriting period (from May 31 to June 30), in which shareholders registered in the company register at last May 26 have the option of taking up 2.9408 new shares for each old one at a price of Ch$60.4202 per share. 2) Voluntary redemption of local bonds (from November 1 to 15), in which holders of local 269 bonds (series B1 and B2) may exchange their bonds for Enersis shares, according to the value assigned by the aforementioned independent expert and at placement price - Ch$ 60.4202 per share. 3) Second preferential underwriting period (from November 20 to December 20), in which all Enersis shareholders registered five working days before the start of this new period, except for the controlling partner and its members, may participate. In this phase, shareholders may take up the remaining shares that were not underwritten at the close of the preferential underwriting period and at the conclusion of the voluntary redemption of local bonds. In this period, new issue shares may only be paid in cash at the same price of Ch$ 60.4202 per share. Once the deadline for the capital increase has expired (December 30 2003), its final amount will be the amount actually underwritten and paid in. At June 30 2003, end date of the first preferential underwriting period, 22,113,264,060 shares were underwritten for a sum of Ch$1,336,087,841,061 equivalent to 90.69% of the total issue. Of total shares underwritten in this preferential period, 14,406,840,511 shares were taken up by controlling shareholder Elesur for the equivalent of Ch$870,464,185,043 pesos and 7,706,423,549 shares by minority shareholders for the equivalent of Ch$465,623,656,018 pesos. Elesur underwrote and paid in its shares by capitalizing the financial credits that it held with Enersis on the date of underwriting, which, according to expert report drawn up by Mr. Eduardo Walker, which was approved by the Extraordinary Shareholders’ Meeting on March 31 2003, amounts to 86.84% of its par value, with the difference being recorded as a share premium of Ch$131,912,812,936. The second preferential underwriting period in November 2003 involved the voluntary exchange of 269 bonds, series B1 and B2. Holders converted Ch$63,656,586,836 into the equivalent of 893,612,466 first issues shares; the amounts underwritten were determined by experts by capitalizing Ch$46,964,178,894 for series B1 and Ch7,028,065,024 for series B2, at Ch$ 60.4202 per share. This operation meant recording a share premium of Ch$6,247,821,056. During the second preferential underwriting period, 1,244,542,758 shares equivalent to Ch$75,195,523,918 were subscribed. The second share underwriting period concluded on December 30, determining the capital increase, in which 99.9% of the capital authorized by the Extraordinary General Meeting of Shareholders, in other words 24,360,146,365 shares, was subscribed, leaving Enersis’ capital with a total of 32,651,166,465 subscribed and paid in shares. b. Dividends During the years ended December 31, 2002 and 2003 the Company no paid dividends c. Number of shares As of December 31, 2003 and December 31, 2002, respectively the number of shares authorized, issued and outstanding was 32,651,166,465 and 8,291,020,100 all of which have voting rights. 267 d. Subscribed and paid capital is as follows as of the year-end: As of December 31, 2003 Shares ThCh$ As of December 31, 2002 8.291.020.100 758.720.279 Intercompany loan capitalization 14.406.840.511 868.723.257 Bonds capitalization Subscribed shares 893.612.466 53.830.267 9.059.693.388 546.437.537 As of December 31, 2003 32.651.166.465 2.227.711.340 unconsolidated financial statements e. Accumulated net income (losses) of development-stage subsidiaries are as follows: Company Compañía Eléctrica Taltal Ltda. Central Generadora Termoelectrica Fortaleza S.A. Aguas Santiago Poniente S.A. Infraestructura 2000 S.A. Gas Atacama Generación Ingendesa (Ingendesa do Brasil) Enigesa (Ingendesa do Brasil) Total f. Other information Detail of other reserves is as follows: ThCh$ Reserve for transaction entities using remeasurement method (10,243,322) Reserve for accumulated conversion differences (15,428,363) 268 Total (25,671,685) As of December 31, 2003 Net income loss for the period ThCh$ Retained earnings (accumulated deficit) ThCh$ - (1,292,923) (55,238) - - 44,914 580 147,835 (2,608,453) (167,940) 355,245 819,520 (1,855) (68) (1,302,667) (1,455,716) Detail of changes in the reserve for accumulated conversion differences are as follows for the year ended December 31, 2003: Initial balance at January 1, 2003 ThCh$ Reserve for assets ThCh$ Reserve for liabilities ThCh$ Final balance at December 31, 2003 ThCh$ Cumulative translation adjustment 46,159,106 (253,265,921) 191,678,452 (15,428,363) Total 46,159,106 (253,265,921) 191,678,452 (15,428,363) Enersis / 2003 annual report The detail of the accumulated conversion difference reserve at December 31, 2003 is as follows: 18. other income and expenses Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Cerj S.A. Luz de Bogotá S.A. Investluz S.A. Central Geradora Termelétrica Fortaleza S.A. Synapsis de Colombia Ltda. Endesa Market Place Endesa Argentina S.A. Compañía Eléctrica Conosur S.A. Endesa de Colombia S.A. Central Costanera S.A. Ingendesa Do Brasil Ltda. Total ThCh$ (7,733,126) 2,471,385 1,302,547 (4,503,144) (2,915,573) (4,985,333) 3,629,135 (2,662,889) 19,801 367,029 2,557,220 (2,954,154) 68,499 (79,994) (9,766) (15,428,363) a. The detail of other non-operating income in each year is as follows: As of December 31, 2002 ThCh$ 2003 ThCh$ Adjustments to investment in related companies 9,225,097 292,285 Proyect administration, maintenance and construction 7,719,017 8,827,460 Gain on sales of Compañía Eléctrica del Río Maipo S.A. - 87,827,096 Gain on forward contracts 4,863,450 - Other Total 794,837 2,785,940 22,602,401 99,732,781 b. Other non-operating expenses in each year are as follows: As of December 31, 2002 ThCh$ 2003 ThCh$ Adjustments to investments in related companies 235,659 2,361,710 269 Provision of negative equity of Luz de Rio Ltda. - 11,328,960 Provision of negative equity of Endesa Market Place - 789,474 Loss for non-participation in Cerj capital increase (Note 8d) Provisions Other tax expenses Other Total 17,190,230 - 362,898 5,732,630 - 748,810 460,356 2,147,416 18,249,143 23,109,000 unconsolidated financial statements 19. price-level restatement The (charge) credit to income for price-level restatement as of each year-end is as follows: Assets Current assets Property, plant and equipment Prepaid expenses Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries long-term Investment in subsidiaries Investment in other companies Amortization of goodwill Prepaid expenses Other current assets Other assents Credit for cost and expense accounts Net credit-assets Liabilities and Shareholders´ equity 270 Shareholders´equity Current liabilities and long- term Accounts payable to subsidiaries short-term Accounts payable to subsidiaries long-term Due to banks and financial institutions short-term Due to banks and financial institutions long-term Bonds payable long-term Non monetary liabilities Charge to income accounts Net charge-liabilities and shareholders´equity Net credits (charges) to income Index As of December 31, 2002 ThCh$ 2003 ThCh$ I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C. I.P.C. I.P.C. U.F. I.P.C. U.F. U.F. I.P.C. I.P.C. I.P.C. I.P.C. U.F. I.P.C. - 433,195 - 8,444,991 176,503 14,227,632 51,328,742 15,684,376 26,188,502 - 20,090 19,353 1,064,987 3,225,743 12,317 141,439 (5,306) 1,173,857 158 4,124,724 17,442,066 7,211,473 7,146,970 (22,020) - - 92,558 37,167 120,618,258 37,355,245 (35,729,346) - - (612,395) (193,074) (30,728,349) (31,601,117) - (15,872,110) (3,042,184) (3,039,352) (1,436,251) (6,939,971) (1,326,553) (1,342,254) 59,206 59,206 (15,652,100) (2,155,830) (11,021,767) (5,366,824) - - 622,396 (119,021,752) (41,781,443) 1,596,506 (4,426,198) Enersis / 2003 annual report 20. exchange differences The (charge) credit to income for foreign currency translation as of each year-end is as follows: Assets Current assets Cash Time deposits Other accounts receivable, net Other current assets Amounts due from related companies Non-current assets Amounts due from related companies Forward As of December 31 , Liabilities Currency 2002 ThCh$ 2003 ThCh$ Current liabilities Currency US$ US$ US$ US$ US$ US$ US$ (223,820) 99,239 Due banks and financial institutions 324,252 (16,634,718) Bonds payable (576,633) (158,602) Amount payable to related companies 16,527,632 - Forward (61,652) (153,616) Other liabilities Long-term liabilities 30,087,184 (96,951,835) Due banks and financial institutions - 21,876,845 Bonds payable Amount payable to related companies US$ US$ US$ US$ US$ US$ US$ US$ As of December 31 , 2002 ThCh$ 2003 ThCh$ (321,328) 666,827 426,150 (43,448) - 308,521 - - (10,492,599) (64,165) (44,586,105) 64,077,725 (19,901,484) 67,996,595 26,057 (37,070) Total gain (loss) 46,076,963 (91,922,687) Total gain (loss) (64,400,158) 122,455,834 Exchange difference- net income (loss) (18,323,195) 30,533,147 21. cash flow statement 22. share issuance costs On June 2 2003 Elesur S.A. capitalized the financial credits that it held with Enersis S.A. for ThCh$1,002,376,998, which transaction did not generate a cash flow. Details of this transaction are explained in note 17a). In November 2003 there was a voluntary exchange of bonds in connection with the capital increase of Enersis. Holders converted ThCh$63,656,587 into 893.612.466 first issue shares; this operation did not generate any cash flow. Details of this transaction are referred to in note 17a). In the item “other financing disbursements”, in the cash flow from financing activity, the following items are included disbursements of commissions for debt refinancing in the amount of thch$39,959,736 forward contract payments in the amount of thch$14,740,450, collar and collateral derivative contracts premiums in the amount of thch$5,459,187, and other disbursements in an amount of ThCh$145,131. Expenses incurred at the close of these financial statements for issuing and placing the shares, outstanding at December 30 2003, were recorded as described in Note 2 v) and break down as follows: 271 Appraisal services Printing costs Legal cost Financial adviser DCV commissions Bank commissions Risk classification services Total As of December 31 2003 2002 ThCh$ ThCh$ 75,326 - 13,954 - - 199,989 - 10,377,599 2,990 - - 1,448,873 - 139,613 - 12,258,344 unconsolidated financial statements 23. financial derivatives As of December 31, 2003 the Company and 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 Nominal Date of Sales/ Hedged Type Contract Amount Maturity Item Purchase Item US$ Amount Hedged item ThCh$ Amount ThCh$ Accounts Assets / Liabilities Income Account Amount ThCh$ Realized Unrealized ThCh$ ThCh$ FR S S OE OE S OE OE OE OE PE CCTE CCTE CCTE CCTE CI CI CI CI CI 219,000,000 III-2003 Exchange rate 50,000,000 I-2004 Interest rate 50,000,000 III-2004 Interest rate 350,000,000 II- 2006 Interest rate 50,000,000 III- 2005 Interest rate 115,000,000 II-2008 Interest rate 50,000,000 II-2004 Interest rate 275,000,000 III -2004 Interest rate 150,000,000 I- 2006 Interest rate 250,000,000 III- 2006 Interest rate S P/S P/S P/S P/S P/S P/S P/S P/S P/S (1) Fr = Forward, S = Swap Other current assets 130,042,200 130,042,200 Other current assets 8,570,040 11,384,569 8,420,887 Bank obligations 29,690,000 29,690,000 Other liabilities long-term 394,874 (1,482,082) (227,128) Bank obligations 29,690,000 29,690,000 Other liabilities long-term 1,100,608 (747,764) (458,817) Bank obligations 207,830,000 207,830,000 Other liabilities long-term (7,483,151) (3,303,038) (865,941) Bank obligations 29,690,000 29,690,000 Other liabilities long-term (1,057,852) (642,231) (111,812) - - Other liabilities short-term (165,046) (22,460) (165,046) - - Other liabilities short-term (124,104) (621,753) (124,104) - - Other liabilities short-term (347,332) (4,402,289) (347,332) - - Other liabilities short-term (230,914) (4,138,451) (230,914) - - Other liabilities short-term (120,816) (3,481,620) (120,816) Within the compass of the financial strengthening plan, approved in October 2002, Enersis and its subsidiary Endesa Chile have obtained financing during this year by placing bonds on the local market and on the US market; this has enabled them to obtain financing with a fixed rate debt and prepay obligations with banks which had a variable rate. 272 The above, together with prepayment of borrowings made using resources obtained from the capital increase, has reduced the variable debt by about US$1,550 million. As a result of the above, hedging instruments covering variable rate borrowings, which were refinanced at fixed rates or prepaid, now have no associated debt and, therefore, appear in the derivatives schedule as investments. 24. commitments and contingencies a. Litigation and other legal actions: i. 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 : On 01/31/2003 appealable judgment was passed, endorsing the petition. An appeal for annulment was filed in the manner of the petition were disallowed, since the court judged that it was incompetent to try the case. Decision appealed. Amounts involved: Indeterminate. iii. 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: On January 31 2003 the decision was handed down disallowing the petition. This decision has been appealed. Amounts involved: ThCh$50,000 iv. 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 the Court, as requested, carrying out all the discharges it deemed reasonable in accordance with law and, expressly rejected CMET’s accusations because of their unfounded nature. Amounts involved: ThCh$52,858 On 11.09.03, the Court ruled on this appeal, disallowing all of its parts, with costs. ii. 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. CMET filed an appeal for reconsideration of this verdict, with alternative appeals, which have still not been ruled on. Amounts involved: Undeterminable. 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. On December 18 2003, all parts v. In a Meeting on March 7 2003, the Board of Directors of the Company agreed unanimously to submit the dispute with the Argentine Republic over the investments made by the Enersis Enersis / 2003 annual report Group in that country through Enersis S.A., Empresa Nacional de Electricidad S.A., Enersis Internacional, Chilectra Internacional and Chilectra S.A., to international arbitration by the International Center for the Settlement of Differences Involving Investments between States and Nationals of other States, C.I.A.D.I. On July 22 2003, Ciadi recorded the petition for arbitration. The procedure for appointing and forming the arbitration panel is currently ongoing. vi. Appealable tax proceeding, that is, before the Internal Revenue Service, because of the difference of ThCh$62,400 between First Category Income Tax and Repayment of Monthly Provisional Payments for absorbed profits from the 1998 tax year. This proceeding is at the sentencing stage. vii. Appealable tax proceeding, that is, before the Internal Revenue Service, because of the difference of ThCh$1,461,400 between First Category Income Tax and Repayment of Monthly Provisional Payments for profits absorbed from the 1999 tax year. This proceeding is at the discussion stage. viii. Appealable tax proceeding, that is, before the Internal Revenue Service, because of the difference of ThCh$900,000 between First Category Income Tax and Repayment of Monthly Provisional Payments for profits absorbed from the 2000 tax year. This proceeding is at the discussion stage. ix. Mercedes Jimenez de Arechaga con Enersis S.A., Enersis S.A. Agencia Islas Caimán, Enersis Internacional, Chilectra S.A., Chilectra S.A. Agencia Islas Caimán y Empresa Nacional de Electricidad. On May 30, 2000 Pérez Companc S.A., today PECOM ENERGIA S.A. and PCI Power Edesur Holding Limited (together, “PECOM”) commenced an action against Endesa-Chile, Chilectra and Enersis (together, “Enersis Group”) before the Arbitration Court of the International Chamber of Commerce, Paris, France. PECOM has petitioned the court to either: Recognize its alleged right to nominate both a director and an alternate director in addition to the directors whom it already has the right to nominate in Distrilec Inversora; or State that PECOM and the Enersis Group should each have an equal number of directors in Distrilec Inversora. On August 2, 2000, Enersis Group contested PECOM’s action and presented a counterclaim requesting the court to terminate several agreements among the parties. Likewise, PECOM requested to be compensated by the Enersis Group if the agreements among the parties were terminated. Based on the provisional estimates made by PECOM, the Arbitration Court determined that the amount of the suit is between US$ 180-200 million. The parties have presented their arguments, evidence and final allegations. The Arbitration Court issued an arbitration award on September 2, 2002, ruling that Enersis Group and PECOM keep their rights to nominate equal number of board members in Distrilec Inversora S.A. and rejecting not only the Enersis Group’s counterclaim, but also Epsom’s claim for compensation of approximately US$ 200 millions. Enersis Group challenged the arbitration award through an appeal for annulment, which was filed before the Uruguayan Court of Appeals. The Republic of Uruguay is the domicile established by the Arbitration Court for all legal purposes. The Uruguayan Court of Appeals has concluded the probative year and is working on the final judgment. On June 18, 2003, Montevideo’s Civil Court of Appeals, 2nd Circuit, ruled on an unappealable basis that the ruling of the Arbitration Court of the International Chamber of Commerce stands, therefore the Arbitral Award remains definitive. In this context, on November 5 2003 notice has been served of the petition to regulate lawyers’ fees arising from challenging the arbitral award as invalid, petitioning that they be set at between US$1,270,000 and US$15,210,000. These amounts are based on differing circumstances. US$15,210,000 is calculated on the basis of the amount set for the Arbitral Award in the respective “Mission Record”. This figure is a claim enforced by Petrobrás Argentina at the end of the arbitration proceeding’s hearing period in the sense that, if the ruling declared the aforementioned agreements of shareholders null and void, said Groups should be indemnified with the above amount. Since the above ruling declared that the shareholders’ agreements remained in force, the International Chamber of Commerce rejected this subsidiary claim. US$1,270,000, in contrast, is obtained based on the amount of Ur$400 million set by the court for certain social security contributions demanded from the lawyers in Uruguay. Since both figures are not presented as subsidiary to each other, the Company’s Uruguayan lawyer understands that the most the plaintiff could aspire to is an award for the lower figure, i.e. US$1,270,000. Furthermore, when the remedy of invalidity was filed it stated that the matter was not susceptible to pecuniary valuation, and this was not disputed. 273 On November 19 2003, a plea was raised in defense against the petition to regulate the fees. On December 10 2003, notified on December 16 2003, the appeal for reconsideration of judgment filed by the Company’s side so that proceedings would move on to receiving evidence was disallowed, and the proceeding stayed in the award stage. b. Restrictions: • The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level: • Enersis’s ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 8.75x; • The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 5.0x; • The ratio of Enersis and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.25x; • The ratio of consolidated debt to shareholders’ equity plus minority interest not exceeding 80%; • Assets corresponding to companies whose business is regulated, is not to be less than 50% of the total consolidated assets. • M i n i m u m s h a re h o l d e r s ’ e q u i t y a t l e a st e q u a l to ThCh$ 456,840,000 (U.F.27 million) As of December 31, 2003 all these obligations have been met. unconsolidated financial statements • 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 relevant subsidiaries, if not corrected in time (as to those specific provisions allowing a year of time to correct the problem), might result in the cross-failure at the Endesa-Chile and Enersis S.A. level., and, in this case, significant percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. 25. sureties obtained from third parties As of December 31, 2002, the Company has received sureties as follows: • There are no longer debt covenants that specify the acceleration of maturities, if the Company’s risk-rating falls below investment- grade. At December 31, 2003 these obligations and restrictions have been fully met. Operation Contractor Relation Support contract Support contract Seriousness of supply Support contract Support contract Support contract Support contract Support contract Support contract Support contract Support contract Support contract Support contract Support contract Others Total 274 CIA. DE TELECOMUNICACIONES DE CHILE METROPOLIS INTERCOM S.A. HOLLEY GROUP CO LTD VTR GLOBAL COM GTD TELEDUCTOS ENTEL S.A. MANQUEHUE NET AGUAS ANDINA BELLSOUTH COMUNICACIONES GTD TELESAT ALFREDO RUIZ CORNEJO XEROX DE CHILE S.A. RESGUARDO AGUAS CORDILLERA • As of December 31, 2003, the Company has received sureties as follows: Operation Contractor EMPRESA NACIONAL DE COMUNICACIONES AT & T CHILE NETWORKS S.A. GTD TELEDUCTOS S.A. VTR GLOBAL COM CIA. DE TELECOMUNICACIONES DE CHILE METROPOLIS INTERCOM Support contract Support contract Support contract Support contract Support contract Support contract Others Total Third Third Third Third Third Third Third Third Third Third Third Third Third Third Relation Third Third Third Third Third Third Third Amount ThCh$ 59,190 59,190 28,780 25,367 18,434 16,235 15,221 8,456 8,456 8,456 5,073 1,691 1,657 1,015 795 258,016 Amount ThCh$ 15,397 16,920 16,920 22,199 49,914 52,706 54,026 228,082 Enersis / 2003 annual report 26. foreign currencies As of December 31, 2002 and 2003, foreign currency denominated assets and liabilities are as follows: a. Current assets Account Cash Time deposits Notes receivables Other receivables Amounts due from related companies Income taxes recoverable Prepaid expenses Deferred income taxes Other current asset Total current assets b. Property, plant and equipment Account Buildings and infraestructure Machinery and equipment Other fixed assets Technical appraisal Depretiation Total property, plant and equipment Currency As of December 31, 2002 ThCh$ 2003 ThCh$ Ch$ US$ US$ Ch$ Ch$ Ch$ US$ U.F. Ch$ Ch$ Ch$ Ch$ US$ 280,789 143,382 4,645,095 744 4,770,740 38,755,996 150,508,136 554,470 9,344,985 24,185 13,840,925 5,041,169 11,900 179,618 153,300 1,152,306 737 1,730,919 113,433,147 11,522,544 471,195 14,481,845 54,080 27,820,558 8,460,824 8,420,565 227,922,516 187,881,638 Currency Ch$ Ch$ Ch$ Ch$ Ch$ As of December 31, 2002 ThCh$ 2003 ThCh$ 20,798,254 2,260,279 785,804 33,182 (10,781,577) 20,798,233 2,301,896 798,232 33,176 (11,628,486) 13,095,942 12,303,051 275 unconsolidated financial statements c. Other assets Account Investment in related companies Goodwill, net Negative goodwill, net Other receivables Amount due from related companies Intangibles Less: Acculated amortization Other assets Total other assets Total activos por moneda Total 276 d. Current liabilities Account Due to banks and financial institutions Bonds payable Dividends payable Accounts payable Miscellaneous payables Amounts payables to related companies Accrued expenses Withholdings Income tax payable Deferred income Other current liabilities Total current liabilities Currency US$ U.F. US$ Ch$ Ch$ US$ Ch$ U.F. Ch$ US$ Ch$ Ch$ Ch$ Ch$ $ no Reaj. US$ U.F. Ch$ US$ Currency As of December 31, 2002 ThCh$ 2003 ThCh$ Ch$ US$ Euro Ch$ US$ Ch$ US$ Ch$ US$ Ch$ Ch$ Ch$ US$ Ch$ US$ Euro U.F. 1,731,634,231 584,183,896 484,792 791,924,896 3,674,978 (143,085) (617,459) 480,134 1,688,307,140 484,260,343 - 731,934,381 2,803,702 (127,615) (479,150) 475,380 505,640,490 1,437,928 (351,586) 53,141,309 - 440,541,432 1,437,928 (423,618) 18,574,061 8,152,938 3,671,490,524 3,375,456,922 2,663,279,302 1,248,190,418 484,792 554,470 2,618,642,436 956,527,980 - 471,195 3,912,508,982 3,575,641,611 Within 90 days 91 days to 1 year As of December 31, 2002 As of December 31, 2003 As of December 31, 2002 As of December 31, 2003 Avg Rate % Avg Rate % Avg Rate % Avg Rate % Amount ThCh$ Amount ThCh$ Amount ThCh$ Amount ThCh$ - - - - - - - - 5.04% - - - - - - 1.85% 4,861,699 - - 212,195 353,819 703 227,515 11,710,592 22,247,233 105,683 3,012,413 203,922 16,842 200,478 - 4,099,460 11,710,592 26,474,417 9,067,545 - 5.06% - - - - - - 4.92% - - - - - - - - 230,102 3,841,472 111,612 173,004 - 241,059 - 30,227,519 51,492 2,037,818 133,370 16,284,563 135,718 - 8,468,298 230,102 49,344,663 12,361,262 264,374,552 7,784,405 3,303,377 - - - - - - 1,629,984 2,540,897 - - - - - 7,784,405 2,540,897 269,307,913 2.69 5.50 7.06 - - - - - - - - - - - - - 3.35% - - - - - - 5.16% - - - - - - - - 789,754 - - - - - - 2,347,868 - 1,333,555 19,604,475 - - - - - 2,347,868 19,604,475 2,123,309 Total current liabilities 47,252,554 61,936,027 279,633,215 24,075,652 Enersis / 2003 annual report e. Long-term liabilities, December 31, 2003 Account Due to banks and financial institutions Bonds payable Accrued expenses Deferred income taxes Other liabilities Total long-term liabilities by currency 1 to 3 years 3 to 5 years 5 to 10 years Currency Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % More than 10 years Amount ThCh$ Avg Rate % - 5.50% - - - - - US$ U.F. US$ Ch$ Ch$ $ no Reaj. US$ U.F. Ch$ US$ - 930,810 - - 4,700,566 - 9,405,879 930,810 4,700,566 9,405,879 3.35% 5.54% 6.90% - - - - 296,900,000 3,076,000 178,140,000 - - - - 3,076,000 - 475,040,000 - 5.63% - - - - - - 8,482,869 - 553,043 - - - 8,482,869 553,043 - - 5.75% 7.38% - - - - - 20,929,597 416,169,480 1,949,798 - - - 20,929,597 1,949,798 416,169,480 Total current liabilities 15,037,255 478,116,000 9,035,912 439,048,875 f. Long-term liabilities, December 31, 2002 Account Due to banks and financial institutions Bonds payable Amounts payables to related companies Deferred income taxes Other liabilities Total long-term liabilities by currency 1 to 3 years 3 to 5 years 5 to 10 years Currency Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % More than 10 years Amount ThCh$ Avg Rate % 2.64% 5.50% - 3.33% - - - - US$ U.F. US$ U.F. Ch$ US$ Ch$ US$ U.F. Ch$ US$ 834,665,515 16,347,446 - 1,018,223,736 - - 4,240,426 38,401,268 1,034,571,182 4,240,426 873,066,783 - 5.53% 6.90% - - - - - - 20,752,562 233,171,630 - - - - - 20,752,562 - 233,171,630 - 5.60% - - - - - - - 25,237,127 - - 561,431 - - - 25,237,127 561,431 - - 5.75% 7.16% - - - - - - 29,468,004 347,465,250 - 1,452,720 - - - 29,468,004 1,452,720 347,465,250 277 Total long-term liabilities 1,911,878,391 253,924,192 25,798,558 378,385,974 27. sanctions 28. subsequent events The Company and its directors has not been the subject to sanctions by the SVS nor by any other administrative authorities. No significant events that might affect these financial statements have occurred in the period from January 1 2004 to their date of issue. 29. environment As of December 31, 2003, the Company has not incurred in environmental expenses. JUAN CARLO WIECZOREK C. Contador General MARIO VALCARCE DURAN Gerente General unconsolidated financial statements unconsolidated significant events Capital Increase of Cerj Provisional dividend On December 10, 2002 the Extraordinary General Meeting of the Shareholders of the Company approved an increase in the capital of CERJ of approximately US$M 105,000. This increase took place on January 10, 2003 by means of an issue and subscription of 770,833,333,333 new ordinary shares valued at R$ 0.48 per lot of one thousand shares, totaling the US$M 100,000 approved at the Meeting and which increased the capital of the Company by US$M 259,085. With this operation, the direct participation held by Enersis S.A. through its agency rose from 20.38% to 40.03%. Accounting adjustments and extraordinary charges during the 2002 period At an extraordinary meeting held on January 15, 2003 the Board of Directors of Enersis S.A. agreed to take note of the fact that the Company was to make accounting adjustments and extraordinary charges to the Balance Sheet with respect to its investments in its subsidiaries in Chile and abroad for a total of the equivalent of US$ 387 million in Chilean Pesos, reflecting these extraordinary adjustments in the results for the year 2002. 278 These adjustments and extraordinary charges will not have an impact on the cash flows of the Company and will be reflected in the financial statements of Enersis S.A. corresponding to the year 2002. The adjustments and extraordinary charges made and the provisions established as of November 30, 2002 are broken down as follows (the figures shown correspond to the impact on the financial statements of Enersis S.A.): Generation Distribution Services Total US$ 60 million US$ 255 million Argentina US$ 23 million US$ 26 million US$ 315 million US$ 49 million US$ 23 million US$ 23 million US$ 83 million US$ 281 million US$ 23 million US$ 387 million Country Brazil Chile Totals We should point out that of the US$ 387 million, US$ 329 million came from the acceleration of the amortization of the net balance of greater and lesser values of the investments in generation and distribution in Brazil and Argentina. To the above figure should be subtracted the provisions made as of November 30, 2002, in accordance with the following breakdown: US$ 81 million Brazil Argentina Total Provisions US$ 16 million US$ 97 million With reference to the above, and taking into consideration the provisions established, the effects of the adjustments and extraordinary charges on the results of the company will amount to approximately the equivalent in Chilean Pesos of US$ 290 million. At a meeting held on February 10, 2003 the Board of Directors of Enersis S.A. unanimously agreed to pay a dividend in the month of February, 2003 as no such conditions were foreseen in the Company’s Policy on Dividends. Financial strengthening At an extraordinary meeting held on October 4, 2002 the Board of Directors of Enersis S.A. approved a financial strengthening plan aimed at strengthening the equity by improving its credit structure to permit the Company to face the situation in the region that was affecting its investments. For this, the same letter announced a capital increase of US$ 1,500,000,000 (One thousand five hundred million United States Dollars), which contemplated cash contributions and / or contributions consisting of financial credits. With respect to this capital increase, the Board of Enersis S.A., in its meeting held on February 17 of this year, has decided, with the unanimous vote of those members present, to propose to the shareholders at a General Meeting to be held, that the amount of the capital increase be for the Chilean Peso equivalent to US$ 2,000,000,000 (Two thousand million United States Dollars), thus increasing by US$ 500,000,000 (Five hundred million Unites States Dollars) the figure originally contemplated. As informed in the mentioned Essential Fact, the capital increase contemplates cash contributions and / or contributions consisting of financial credits. Increase in capital of Enersis, debts to be capitalized At the meeting held on March 7, 2003, the members of the Board of Enersis S.A. present, unanimously agreed the following: 1. The credits eligible for capitalization in the capital increase process that the Board has decided to propose at the Extraordinary General Meeting of Shareholders to be held on March 31, 2003, are the following: a) Credits outstanding granted to Enersis S.A. by Edesur S.A. for UF 58,701,778.99, and b) Debts outstanding corresponding to the issue of the local B1 and B2 bonds for UF 5,874,406.15, in accordance with the contract on the bond issue established in the deeds dated June 14 and August 30, both of 2001, drawn up before Notary Public Humberto Quezada in Santiago. 2. Place at the disposal of the Shareholders a specialists report on the obligations referred to in the point above, which shall be submitted for the approval of the Extraordinary General Meeting of Shareholders indicated above. Enersis / 2003 annual report Refinancing bank debt Increase in capital of Enersis, repurchase of Yankee Bonds At a meeting held on March 11 of this year, the Board of the Company agreed the following: 1. ENERSIS S.A. (Enersis) and its subsidiary, Empresa Nacional de Electricidad S.A. (Endesa-Chile) gave mandates in order to initiate the syndication of credits for approximately US$ 2.3 thousand million, after reaching an agreement with the four lead banks. BBVA S.A., Dresdner Kleinwort Wasserstein, Salomon Smith Barney Inc. and Santander Central Hispano Investment Securities have agreed with Enersis and Endesa Chile to put into place an operation to refinance their bank borrowings. Enersis’ credit is for approximately US$ 1.6 thousand million whilst that of Endesa Chile amounts to approximately US$ 0.7 thousand million. The group of four entities holding the mandate account for approximately US$ 1.1 thousand million of the debt to be refinanced by the Group on a consolidated basis. 2. The principal objective of this refinance that falls within the Financial Strengthening Plan of these companies, is to reduce consolidated borrowings by approximately US$ 2.2 thousand million. 3. The refinancing proposed has a new term up to 2008 with half-yearly amortizations commencing 30 months from the initiation of the operation. Furthermore, the clause that permitted a pre-payment in the event of a deterioration of the credit rating given by the risk rating agencies will be replaced by a series of new financial covenants and commitments that will match their business plan. 4. Also considered is that the new operation will have certain additional guarantees, within the Enersis Group, that will be compatible with the limits permitted by the contracts that cover the rest of the current debts of Enersis and Endesa Chile. 5. The conditions of the operation have been agreed by the four banks mentioned and by the Directors of Enersis and Endesa Chile and will be presented shortly to the rest of the banks for their consideration and approval. Río Maipo awarded At a meeting held on March 28, 2003 the Board of Directors of ENERSIS S.A. analyzed the offers received for the entire shares that ENERSIS S.A. holds in its Chilean subsidiary, Compañía Eléctrica del Río Maipo S.A. (Río Maipo). Furthermore, the Board has agreed to propose to the Extraordinary General Meeting of Shareholders of ENERSIS S.A. to be held on March 31, 2003 that it authorize the sale of all the shares owned by ENERSIS S.A. issued by Río Maipo (356,078,645 shares), declared as essential assets, in favor of CGE Distribución S.A., a subsidiary of Compañía General de Electricidad S.A., that has presented the best purchase offer. The purchase price of the shares mentioned above offered by CGE Distribución S.A. amounts to US$ 170,071,000 (One hundred and seventy million and seventy one thousand United States Dollars). The effects of this operation on the results of ENERSIS S.A. will be approximately US$ 126 million before tax. At a meeting held on March 28, 2003 the Board of Enersis S.A. agreed to propose the following operation to the senior management of its subsidiary Enersis Internacional: To purchase from the shareholders of Enersis S.A. that hold the right to participate in the second preferential option period of the capital increase to be submitted to the Extraordinary General Meeting of Shareholders to be held on March 31, 2003, the American bonds that Enersis S.A.’s agency in Cayman Islands issued in November 1966 on the international market (Yankee Bonds). This purchase will take place with a global and total limit of US$ 50 million and in the other conditions established below or those additional terms that may be established by Enersis Internacional and will be advised to the market at the time. This acquisition will reflect a sign of support of the shareholders of Enersis S.A. who, in addition are holders of Yankee Bonds, which will motivate a greater subscription of the shares issued in this capital increase. The mechanism describer shall have the additional benefit of reducing the consolidated debt of the Company, replacing it with equity. The purchase of the Yankee Bonds will be made at the same price estimated by the expert, Eduardo Walker in his expert report dated March 6, 2003 which has been widely circulated amongst the shareholders and the market in general and, for a limited amount, considering each shareholder individually, equivalent to the amount required for the shareholder to be in a condition to subscribe the pro rata that corresponds to him in the second period of the preferential offer of the capital increase of Enersis S.A. In accordance with the terms of the contract covering the purchase of the bonds he subscribes with Enersis Internacional, the shareholder that is selling is obliged to utilize the resources he will receive from the sale of his Yankee Bonds to subscribe the shares from the new issue of the Company. If the offers for sale of Yankee Bonds exceed the total and global amount of US$ 50 million, the purchase will be carried out, amongst all the interested parties, pro rata, in the conditions that will be determined by the Board of Enersis Internacional. Signing of the syndicated loans As of May 12, 2003, syndicated loans agreements have been signed by Enersis S.A. and its subsidiary Endesa Chile with 32 banks to refinance borrowings of US$ 2,330 million. We trust this operation will be concluded at the latest May 15, 2003 as it is subject to the satisfaction of the various conditions precedent. The US$ 2,330 million that mature during the current year and in 2004 will have a new term expiring in 2008 with amortizations commencing in the year 2005. These syndicated loans eliminate the possibility of any accelerated repayment of the credits due to a deterioration in the degree of investment rating. In accordance with Circular Nº 988 issued by that Superintendency, we inform you that the rise in the average financial costs of the debt involved in this operation will be more than compensated by the effects of the measures considered in the Financial Strengthening Plan of the Group, amongst which is the reduction of some US$ 2,300 million in consolidated debt. Refinancing Following the agreement reached by the Board of Directors of Enersis S.A. in the meeting on May 15 of this year, we report the following: 1. Enersis S.A. (Enersis) and its subsidiary Empresa Nacional de Electricidad S.A. (Endesa-Chile) as of this date, have complied with all the conditions precedent required for the syndicated loans, signed by these companies with 32 banks, amongst which are all the banks that participated in the 279 unconsolidated financial statements previous bank credits – on last May 12. Thus, the operation has been closed. The signing of these credits has already been informed to that Superintendency in our Essential Fact letter dated May 12, 2003. 2. These syndicated loans will be utilized to refinance the debts of Enersis and Endesa Chile for some US$ 2,330 million, US$ 1,587 million corresponding to Enersis and US$ 743 million to Endesa-Chile. 3. The principal objective of this refinance that falls within the Financial Strengthening Plan of these companies, is to reduce consolidated borrowings by approximately US$ 2.3 thousand million. 4. The syndicated loans consider a new term up till 2008, at fixed annual rates for the life of the credits of Libor + 350 basis points for Enersis S.A. and Libor + 300 basis points for Endesa-Chile, with half-yearly amortizations of capital to commence from November 205. These credits contemplate a grace period of 30 months from May 15, 2003 during which interest will be paid only on the new credits. This will permit Enersis and its subsidiary Endesa-Chile a better compatibility with its respective cash flows during the initial years with an adequate service of the current debt. The clause that allowed for an acceleration of the repayment in the potential case of a loss of the investment grade by Standard & Poor’s due to a deterioration in the risk rating granted by the risk rating agency and the clause that linked the interest of the credit to the risk rating of the Companies have been eliminated and were replaced by a series of new covenants and financial commitments in line with the business plans of the companies. 280 5. For the purposes of this refinancing, Enersis and Endesa-Chile have granted certain guarantees in favor of the 32 banks mentioned above. Enersis has given in lien all the shares it owns in Chilectra S.A. and has also given under lien the credits owed to it by Chilectra S.A. The obligations assumed by Endesa-Chile under the new credits are guaranteed by personal guarantees and co-debtor conditions its subsidiaries Empresa Eléctrica Pehuenche S.A., granted by Empresa Eléctrica Pangue S.A. and Compañía Eléctrica Tarapacá S.A. 6. The rise in the average financial costs of the aforementioned operation will be compensated by the effects of the measures considered in the Financial Strengthening Plan of the Group, amongst which is the reduction of some US$ 2,300 million in consolidated debt. Transfer of shares in Enersis On August 1, 2003 this company was informed that Elesur S.A. sold to Endesa Internacional S.A., both companies 100% controlled by the Endesa Spain Group, 17,321,166,047 shares in Enersis S.A. corresponding to 56.9697% of the capital of Enersis S.A. at a price equivalent to 68.5 pesos per share. This transfer does not mean any change in the total share participation the Endesa Group holds in Enersis S.A. nor in the control that the Group has over Enersis S.A. Furthermore, we are advised that this was done as part of the process of rationalization and simplification of the corporate structure of the Endesa Group. Provisional dividend At a meeting held on July 30, 2003 the Board of Directors of Enersis S.A. unanimously agreed not to pay a provisional dividend in the month of August 2003, charged to the results of the month of June, 2003 in accordance with current policy on the matter, as no such conditions are foreseen in the Company’s Policy on Dividends. Provisional dividend At a meeting held on October 31, 2003 the Board of Directors of Enersis S.A. unanimously agreed not to pay a provisional dividend in the month of November 2003, charged to the results of the month of September 2003, in accordance with current policy on the matter, as no such conditions are foreseen in the Company’s Policy on Dividends. Voluntary redemption of local bonds The process of “The Offer to voluntarily redeem Bonds Nº 269, Series B1 and B2, initiated last November 1was concluded on November 15, 2003. This process gave all holders of these bonds issued by Enersis S.A. the option to exchange them for first issue payment shares in the Company. On concluding this process, we report that a total of 893,612,466 shares were subscribed, corresponding to Ch$ 53,992,243,918. This sum implies a reduction in debt for Enersis S.A. of UF 3,666,621. With this operation, 64.84% of the UF value of the Bonds Series B1 and B2 when it started were exchanged. Furthermore, as a consequence of the exchange of these bonds, the shareholders of Enersis S.A. registered as of the close of November 14, 2003 may participate in the so-called Second Preferential Offer Period of the capital increase of the Company, having the right to subscribe 0.1196427367 shares of a new issue for each share registered in their names as of the date indicated above. Prepayment of syndicated loans In a meeting held on Tuesday, November 25, the Board of Directors of the Company agreed to report the following: 1. Enersis S.A. has prepaid the entire syndicated loan it had with BBVA S.A., Dresdner Kleinwort Wasserstein, Salomon Smith Barney, Inc. and Santander Central Hispano Investment Securities together with a further 27 institutions which was granted on May 15, 2003 for approximately US$ 1,587 million. This last prepayment implied for the Company the liberation of security established in favor of those creditor banks, i.e., the lien on the shares owned by Enersis S.A. and issued by its subsidiary, Chilectra S.A. as well as the lien on inter- company loans granted by Enersis S.A. in favor of Chilectra S.A. 2. This last prepayment was made principally with funds from a credit for US$ 500 million signed on November 14, 2003 with the Banco Bilbao Vizcaya Argentaria, The Bank of Tokio-Mitsubishi Ltd., Caja Madrid (Agency), Deutsche Bank Securities Inc. and San Paolo IMI S.p.A., from the issue and placement of bonds on the United States market )Yankee Bonds) on November 24, 2003 for US$ 350 million and from other sources. The Yankee Bonds were issued at a term of ten years and with a bullet payment, under Rule 144A at a rate of 7.375% per annum. 3. The refinancing mentioned falls within the Financial Strengthening Plan adopted by the Company on October 4, 2002. Capital increase is concluded At a meeting held on last December 18, the Board of Directors informed you by means of an Essential Fact letter of the conclusion of the Second Preferential Subscription Period of the capital increase of Enersis S.A. agreed by the Extraordinary General Meeting of Shareholders on March 31, 2003. Enersis / 2003 annual report As is public knowledge, this capital increase contemplated three phases; two periods of preferential subscription and one period to redeem local bonds payable in new issue shares. The effects this capital increase will have on the results of Enersis S.A., in accordance with Circular Nº 988 of that Superintendency cannot be reasonably quantified as of this date. The First Preferential Subscription Period commenced on May 31, 2003 and concluded on June 30, 2003. The Second Preferential Subscription Period ran from November 20, 2003 to December 20, 2003. Notwithstanding the above, we must bear in mind that this capital increase significantly strengthens the equity structure of the company. Furthermore, as also reported at the time to that Superintendency and to the general public, between last November 1 and 15, there was an “Offer to Voluntarily Redeem Bonds Nº 269, Series B1 and B2”, the result of which was informed to you by means of an Essential Fact letter dated last November 17. This process gave all the bearers of these local bonds issued by Enersis S.A. the option to exchange them for first issue payment shares in the Company. On concluding the Second Preferential Subscription Period of the capital increase mentioned, we report that a total of 24,360,123,331 shares were subscribed, corresponding to Ch$ 1,471,843,528,820. This sum implies that a 99.9% capital increase approved by an Extraordinary General Meeting of Shareholders of Enersis S.A. on March 31 is fully subscribed and paid in as of this date. (The part of the capital increase not subscribed and paid in will mature on December 30, 2003, leaving the capital of Enersis S.A. reduced to that actually subscribed and paid in). Elesur shares On December 22, 2003 Enersis S.A. was informed that its shareholder Elesur S.A. had sold and transferred to Endesa Internacional S.A., both 100% subsidiaries of the Endesa Spain Group, 1,778,826,237 shares in Enersis S.A., representing 5.448475% of the registered capital of Enersis S.A., at a price equivalent to Ch$ 84.50 per share. This transfer does not mean any change in the control that this Group has over the Company and we have been advised that this operation was done as part of the process of rationalization and simplification of the corporate structure of the Endesa Group in Spain. 281 unconsolidated financial statements I. ratio analysis of the unconsolidated financial statements 1. analysis of the income statement The result achieved by the company as of December 31, 2003 is a profit of Ch$ 12,468 million, representing an increase of Ch$ 238,453 million with respect to the year before when the company made a loss of Ch$ 225,985 million. Income Statement (Millions of CH$) Operating Revenues Operating Expenses Operating Margin Selling and Administrative Expenses Operating Income Profit (Loss) in Related Companies Net Others Non Operating Income Net Financial Margin Positive Goodwill Amortization Monetary 282 Exchange Differences Non Operating Income Income Tax Negative Goodwill Amortization Net Income Ebitda (*) Earnings per Share Dec-02 4,325 (1,097) 3,228 (22,048) (18,820) (8,528) 4,353 (87,931) (108,968) 1,597 (18,323) (217,800) 9,581 1,053 (225,986) 14,713 (27.26) The variations in each item of the income statement are shown in the following table. Dec-03 Variation % Variation 4,332 (1,130) 3,202 (17,018) (13,816) 42,085 76,624 (102,939) (49,864) (4,426) 30,533 (7,987) 12,636 21,635 12,468 95,161 0.38 7 (33) (26) 5,030 5,004 50,613 72,271 (15,008) 59,104 (6,023) 48,856 209,813 3,055 20,582 238,454 80,448 27.64 0.2% (3.0%) (0.8%) 22.8% (26.6%) 593.5% 1,660.3% (17.1%) 54.2% (377.1%) 266.6% 96.3% 31.9% 1954.6% 105.5% 546.8% 101.4% (*) Earnings Before Income Tax, Interest, Deprecation and Amortization of Extraordinary Items a. Net Operating Income had a positive variation of Ch$ 5,004 million that is explained by lower costs of personnel and general services. b. The Net Non Operating Income of the Company rose by Ch$ 209,813 million or 96.3% from a loss of Ch$ 217,800 million in the year 2002 to a loss of Ch$ 7,987 million in 2003. This is explained by the following variations: The net financial margin suffered a negative variation of Ch$ 15,008 million with respect to the same period of the previous year. This variation is principally due to an increase of Ch$ 39,316 million in financial costs with third parties, of which Ch$ 25,638 million correspond to the acceleration of deferred expenses related to the refinancing of debt, compensated by lower costs and financial revenues with related companies whose net effect was Ch$ 24,308 million, explained by the elimination of the debt with Elesur S.A. capitalized in the month of June 2003. Investments in related companies as of December 31, 2003 show a net profit of Ch$ 42,085, an increase of Ch$ 50,613 million from the loss of Ch$ 8,528 for the same period of the previous year. This increase is due principally to an increase in the results from investments in Endesa S.A., Chilectra S.A., Investluz, Inmobiliaria Manso de Velasco S.A., Synapsis IT Ltda., Cam Ltda., Luz de Bogotá S.A., compensated by a reduction of Ch$ 131,741 million in the results from Edesur S.A., Distrilec S.A., Cerj, Enersis Internacional, Luz de Río and Río Maipo S.A. The amortization of negative goodwill fell by Ch$ 59,104 million to Ch$ 49,864 million as of December 31, 2003. This reduction is fundamentally due to a lower amortization in the companies that are established in Brazil and Argentina as a result of the accelerated amortization applied to the balances of negative goodwill as of December 31, 2002. The other non operating income and expenses achieved a net profit of Ch$ 76,624 million as of December 31, 2003, a positive variation of Ch$ Enersis / 2003 annual report 72,271 when compared to the loss of Ch$ 4,353 as of the same date in 2002. This explained principally by: Interest Rate Risk • The accounting of the profit on the sale of Río Maipo of Ch$ 87,827 million. • A reduction of Ch$ 17,190 million in the loss for not having participated in the capital increase of Cerj in July 2002. • Compensated by a decrease of Ch$ 8,932 million in the profit on the adjustment on investments in related companies. • By a reduction of Ch$ 4,863 million in the profit on forward contracts. • By an increase of Ch$ 11,329 million in the provision on the negative net worth of the subsidiary Luz de Río and the increase of Ch$ 2,915 million in the loss from the adjustment on investments in related companies. • By an increase of Ch$ 5,370 million in the extraordinary provision. The price-level restatement and exchange differences reflect a net positive variation of Ch$ 42,833 million with respect to the same period of the previous year, rising from a loss of Ch$ 16,726 million as of December 31, 2002 to a profit of Ch$ 26,107 million in the year 2003. The above is principally due to the greater impact from the appreciation of the Chilean Peso against the US Dollar during this year. The variation in the exchange rate during the period ended December 31, 2003 is an actual appreciation of 18.47% of the Chilean Peso against the US Dollar compared to a real devaluation of 6.75% of the Chilean Peso with respect to the US Dollar during the same period of the year 2002. Income and deferred taxes show a rise in profit of Ch$ 3,055 million in comparison to the same period of last year, increasing from a profit of Ch$ 9,581 million as of December 2002 to a profit of Ch$ 12,636 million during this period. This is explained mainly by an increase of Ch$ 19,339 million in the profit from deferred taxes, compensated by a rise of Ch$ 16,285 in taxes payable due to the sale of Río Maipo S.A. Amortizations of the positive goodwill of investments shows an increase of Ch$ 21,635 million in the amortization during the period, reflecting the accelerated amortization of the positive goodwill generated by the investment made in January 2003 in Cerj. As of the close of December 31, 2003 Enersis had its entire variable debt (indexed to Libor-US$) covered by derivatives, thus there was no significant exposure to fluctuations in the rates of interest. As of December 31, 2002,Enersis also had the entire variable debt (indexed to Libor-US$) hedged against fluctuations in interest rates. The decrease in the proportion of the variable debt is due to the capitalization of the loans granted by the Parent Company, to the issue of international bonds at fixed rates and to the successful capital increase process from which the resources were utilized to pay variable loans in US Dollars (indexed to Libor-US$). Bearing in mind the debt situation of all its subsidiary companies, this structure would be 1% and 12% as of the close of December 2003 and December 2002 respectively. Exchange Risk Enersis’ individual exposure to an exchange risk is derived from the liabilities denominated in foreign currency, most of which are in US Dollars. As of December 31, 2003, 96% of the individual debt was expressed in US Dollars. Enersis holds forward sales contracts in US Dollars to hedge its Assets/ Liabilities mismatch. As of the close of September 30, 2003 97% of the debt was denominated in US Dollars. 283 The reason behind the largest part of our debt being denominated in US Dollars is the fact that an important proportion of our revenues is directly or indirectly related to the US Dollar. The exchange risk exposure is currently handled on a consolidated basis. The Company’s policy is to hedge between 70% and 85% of the booked exposure to exchange risks. The application of this policy lies basically in the maintenance of a position of US$/CLP forward contracts. As of the close of December 2003 and September 2003, Enersis had an overbought position in US$/CLP forwards of –US$ 219 million and an overbought position in US$/CLP of –US$ 163 million, respectively. The variation in the hedging contracts is explained by the reduction in the debt in US Dollars. unconsolidated financial statements 2. analysis of the balance sheet The following has been the evolution of the principal financial ratios: Assets (Millions of Ch$) Current Assets Fixed Assets Other Assets Total Assets Variation % Variation Dec-02 M$ 227,922 13,096 Dec-03 M$ 187,882 12,303 3,671,491 3,375,457 (40,040) (793) (296,034) 3,912,509 3,575,642 (336,867) (17.6%) (6.1%) (8.1%) (8.6%) The total assets of the Company show a decrease of Ch$ 336,867 million • Reduction of Ch$ 7,908 million in the fair value of derivative contracts with respect to the same period of the previous year, due principally to: of Ch$ 21,734. • Reduction of Ch$ 129,491 million in short and long-term accounts • Reduction of Ch$ 2,212 million in the discount on the placement of receivable from related companies. bonds. • Reduction of Ch$ 143,735 million in investments in related • Increase of Ch$ 19,119 million in tax rebates and deferred taxes. companies. • Reduction of Ch$ 57,892 in the negative goodwill of the investments due to the accelerated amortization applied on the balances as of December 31,2002. • Increase in current assets and other long-term assets of Ch$ 8,354 million due to expenses associated to the refinancing of bank debts. • Increase of Ch$ 8,409 million in rights on forward contracts. 284 Liabilities (Millions of Ch$) Current Liabilities Long-Term Liabilities Equity Total Liabilities Variation % Variation Dec-02 M$ 326,886 2,569,987 1,015,636 Dec-03 M$ 86,012 941,238 2,548,392 (240,874) (1,628,749) 1,532,756 3,912,509 3,575,642 (336,867) (73.7%) (63.4%) 150.9% (8.6%) Current liabilities decreased by Ch$ 1,869,623 million or 64.54% with • An increase of Ch$ 16,268 million in income tax mainly due to the respect to December 31, 2002, explained principally by: sale of Río Maipo S.A. • A reduction of Ch$ 1,018,224 million in short and long-term accounts payable to related companies, principally to Elesur S.A. whose debt was capitalized. • An increase of Ch$ 11,143 million in the negative net worth of investments and an increase of Ch$ 4,943 million in other provisions. • A reduction of Ch$ 835,972 million in obligations with banks and with the public due to payments of Ch$ 1,195,040 million made during the period and to the variation in the exchange rate between December 31, 2003 and December 31, 2002 whose effect amounted to Ch$ 228,739 million, compensated by loans for Ch$ 367,699 million obtained from banks and by an international bond issue for Ch$ 220,108 million. • A reduction of Ch$ 23,328 million in other short and long-term assets related mainly to the calculation of a fair value of the derivative contracts. With regard to the equity, we point out that this rose by Ch$ 1,532,756 million with respect to December 31, 2002. This variation is explained principally by: • The increase of Ch$ 1,468,991 million in paid-in capital following the subscription of 24,360 million shares as a result of the overprice principally due to the capitalization by Ch$ 125,619 million of Elesur and to the recording of the profit of Ch$ 12,468 million for the period. This is compensated in part by the reduction of Ch$ 73,020 million in other reserves. Enersis / 2003 annual report Ratio Liquidity Debt Return Unit Dec-02 Dec-03 Variation Dec 03-02 % Variation Dec 03-02 Current Liquidity Acid Test (1) Working Capital Debt Ratio Short-Term Debt Long-Term Debt Financial Expenses Coverage (2) Return on Equity Return on Assets Times Times Ch$MM Times % % Times % % 0.70 0.70 2.18 2.18 1.48 1.48 (98,964) 101,870 200,834 2.85 0.11 0.89 0.10 -22.25% -5.78% 0.40 0.08 0.92 0.67 0.49% 0.35% (2.45) (0.03) 0.03 0.57 22.74% 6.13% 211.4% 211.4% 202.9% 86.0% (27.3%) 3.4% 570.0% 102.2% 106.1% (1) Current Assets net of Stocks and Pre-paid Expenses (2) We utilized EBITDA divided by Financial Expenses Principal Ratios The liquidity ratio as of December 2003 was 2.18 times, a rise of 1.48 points with respect to the same date of the previous year due principally to the reduction in short-term obligations with banks that were paid during the period. The debt ratio as of December 31, 2003 was 0.40 times. When compared to the same period of the year 2002, there is a decrease of 2.45 points. This reduction is due principally to the increase in Enersis’ capital and to a reduction in accounts payable to related companies and to the payment of bank credits. The return on equity closed at 0.49%. As of the same date of the previous year, this was –22.25%. This increase in the return is due to the improvement in the profit for the period with respect to the 2002 period. 3. principal cash flows During the period, the company generated a net cash flow of Ch$ 3,078 million, which is comprised of the following items: 285 Cash Flow (Millions of Ch$) From Operations From Financing From Investments Net Cash Flow for the Period Dec-02 (10,381) (83,397) 95,145 1,367 Dec-03 Variation Dec 03-02 % Variation Dec 03-02 (88,238) (125,187) 210,347 (3,078) (77,857) (41,790) 115,202 (4,445) 750.0% 50.1% 121.1% (325.2%) The operating activities generated a negative cash flow of Ch$ 88,238 million that represents a reduction of 750.0% with respect to December 2002. This cash flow is comprised principally by the profit of Ch$ 87,827 million on sales of assets and a fall of Ch$ 26,964 million in the assets and liabilities that affect the operating cash flow, compensated by a profit for the period of Ch$ 12,468 million and by charges for Ch$ 14,085 million to the income statement that do not represent cash flows. The financing activities generated a negative cash flow of Ch$ 125,187 million, originated mainly by the payment of loans of Ch$ 1,140,141 million to third parties, by disbursements of other financial expenses of Ch$ 60,305 million and by the payment of loans to related companies for Ch$ 64,898 million, all compensated by the share issue for Ch$ 535,633 million and by the receipt of loans from banks and other sources of financing for Ch$ 604,594 million. Investment activities generated a net positive cash flow of Ch$ 210,347 million explained fundamentally by the sale of fixed investments for Ch$ 161,428 million, by the collection of loans from related companies for Ch$ 53,071 million and by the collection of other revenues from investments of Ch$ 1,635 million, compensated by payments of Ch$ 5,788 million to related companies. unconsolidated financial statements 4. book value and market value of the assets With regard to the more important assets, we mention the following: The value of the items in fixed assets have been adjusted in accordance with the accounting criteria established by the Chilean Superintendency of Securities and Insurance in its Circulars Nº 550 and 556 issued in 1985. In the case of the foreign company, Inversiones Distrilima S.A., the value of the fixed assets were adjusted in accordance with the exception criteria indicated in Technical Bulletin Nº 45 issued by the Chilean College of Accountants, the norm in force at the time the investment was made and which was not modified by Technical Bulletin Nº 51 that replaced it. Depreciation is calculated on the updated value of the goods in accordance with the years of useful life remaining for each item. Investments in related companies are valued at their proportional equity value. In the case of foreign companies, this methodology has been applied on the basis of the financial statements prepared in accordance with the norms established in Technical Bulletin Nº 64 of the Chilean College of Accountants and intangible values have been adjusted by price-level restatement and are amortized according to the norms indicated in Technical Bulletin Nº 55 of the Chilean College of Accountants. In accordance with Official Circular Nº 150 dated January 31, 2003 and issued by the Superintendency of Securities and Insurance, as of the close of the financial statements for the 2002 period, the company has evaluated the recoverability of the assets related to its investments, applying the accounting principles generally accepted in Chile which are Technical Bulletins Nº 33 for fixed assets and in accordance with the indications of Technical Bulletin Nº 56, the company has applied NIC 36 for the positive or negative goodwill values of those investments. Assets expressed in foreign currency are shown at the exchange rate as of the close of the period. Investments in financial instruments with repurchase/resale agreements are shown at their purchase value plus the proportion of the interest calculated on the implicit rate of each operation. Accounts and bills receivable from related companies are classified according to their short and long-term maturities. The operations are adjusted to equal conditions similar to those that are normally applied in the market. In summary, assets are valued according to generally accepted accounting principles and norms and to instructions issued on this matter by the Superintendency of Securities and Insurance explained in Note 2 of the Financial Statements. 286 Enersis / 2003 annual report financial statements of subsidiaries I N D E X S U M M A R I Z E D B A L A N C E S H E E T S B Y S U B S I D I A R Y 287 S U M M A R I Z E D I N C O M E S T A T E M E N T S B Y S U B S I D I A R Y S U M M A R I Z E D C A S H F L O W S T A T E M E N T S B Y S U B S I D I A R Y unconsolidated financial statements Summarized Balance Sheets by Subsidiary As of December 31, 2002 and 2003 in thousands of Chilean Pesos ASSETS Current Assets Fixed Assets Other Assets TOTAL ASSETS LIABILITIES AND EQUITY Current Liabilities Long Term Liabilities Minority Interests Capital and Reserves Retained Earnings (Losses) Profit (Loss) for the Period Provisional Dividends Surplus (Deficit) during Development Period Subsidiary CHILECTRA SYNAPSIS 2003 2002 2003 2002 I. MANSO DE VELASCO 2002 2003 CAM 2003 2002 ENERSIS INTERNACIONAL 2002 2003 DISTRILIMA EDESUR ENDESA CHILE LUZ DE BOGOTÁ CERJ INVESTLUZ 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 143,985,957 329,414,610 589,791,336 95,614,481 304,038,524 748,585,147 21,901,808 2,764,950 14,458 23,044,051 2,374,920 13,532 43,008,704 38,268,742 6,621,658 40,047,602 39,521,595 6,978,219 44,366,468 14,780,685 329,597 39,579,124 13,258,431 2,809,455 197,254,057 - 100,271,002 272,021,666 - 127,874,350 35,132,181 324,561,730 4,030,749 46,129,495 399,972,411 3,107,431 62,849,087 683,548,351 16,347,871 58,302,712 874,504,955 32,991,452 392,862,056 4,667,941,801 404,531,983 547,619,749 5,726,547,619 315,276,042 218,597,485 816,435,459 98,828,901 137,946,645 1,041,313,825 148,821,994 165,739,650 618,803,340 291,480,724 200,386,850 768,569,646 287,184,330 141,920,431 597,135,519 65,585,754 134,082,349 758,977,275 77,779,877 1,063,191,903 1,148,238,152 24,681,216 25,432,503 87,899,104 86,547,416 59,476,750 55,647,010 297,525,059 399,896,016 363,724,660 449,209,336 762,745,309 965,799,119 5,465,335,840 6,589,443,410 1,133,861,845 1,328,082,464 1,076,023,714 1,256,140,826 804,641,704 970,839,501 151,300,289 480,080,607 5,315,512 280,079,850 94,946,090 51,469,555 - - 243,655,378 455,664,360 23,009,755 330,962,570 166,378,657 (31,311,681) (40,120,887) - 13,759,207 697,053 3,732 4,278,543 - 5,942,681 - - 16,031,502 552,242 1,558 4,378,673 28,529 4,439,999 - - 18,006,785 331,129 27,568,670 6,272,967 34,580,739 1,306,753 - (167,939) 1,400,889 17,218,734 27,186,789 6,160,265 44,616,322 (10,035,583) - - 22,392,985 1,991,389 544 2,747,544 21,524,634 10,819,654 - - 24,180,086 6,182,717 577 3,662,768 13,559,134 8,061,728 - - 1,811,714 4,869,771 - 204,282,237 132,557,209 (36,689,385) (9,306,487) - 2,301,235 51,354,176 - 213,683,395 93,679,101 38,878,109 - - 61,042,367 82,023,178 88,655,299 110,962,834 18,898,330 8,857,512 (6,714,860) - 66,780,079 89,919,887 117,987,616 146,948,835 22,275,693 13,202,015 (7,904,789) 154,040,522 32,744,832 - 578,102,077 24,959,264 (27,101,386) - - 211,752,579 16,930,391 - 706,608,678 22,220,279 8,287,192 - - 465,289,017 2,289,634,773 1,217,743,010 1,303,698,640 109,151,303 78,130,912 - 1,688,185 1,145,546,302 2,485,741,892 1,513,213,543 1,334,178,034 126,108,187 (9,412,247) - (5,932,301) 172,133,829 48,029,635 426,206,054 477,855,243 18,373,030 4,206,442 (12,942,388) - 143,576,048 51,985,948 525,985,364 582,320,219 28,772,008 (4,557,123) - - 365,106,850 264,512,911 - 555,618,369 (10,440,941) (98,773,475) - - 385,084,994 285,699,114 - 598,118,582 (3,659,309) (9,102,555) - - 140,273,793 146,024,575 231,573,636 508,472,603 (213,020,890) (8,682,013) - - 171,955,736 133,218,197 304,537,745 621,501,232 (60,137,666) (200,235,743) - - TOTAL LIABILITES AND EQUITY 1,063,191,903 1,148,238,152 24,681,216 25,432,503 87,899,104 86,547,416 59,476,750 55,647,010 297,525,059 399,896,016 363,724,660 449,209,336 762,745,309 965,799,119 5,465,335,840 6,589,443,410 1,133,861,845 1,328,082,464 1,076,023,714 1,256,140,826 804,641,704 970,839,501 Summarized Income Statements by Subsidiary As of December 31, 2002 and 2003 in thousands of Chilean Pesos CHILECTRA SYNAPSIS 2003 2002 2003 2002 I. MANSO DE VELASCO 2002 2003 CAM 2003 2002 ENERSIS INTERNACIONAL 2002 2003 DISTRILIMA EDESUR ENDESA CHILE LUZ DE BOGOTÁ CERJ INVESTLUZ 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 OPERATING INCOME Operating Incomes Operating Costs Administrative and Selling Expenses 426,823,402 (304,333,838) (34,437,614) 401,916,783 (281,511,962) (32,211,599) 45,283,092 (30,331,333) (6,213,773) 50,028,085 (37,603,305) (6,177,952) 11,333,580 (10,501,287) (1,690,676) 11,492,120 (6,036,763) (1,640,989) 91,718,390 (71,827,760) (6,151,395) 94,885,027 (74,422,088) (7,994,068) NET OPERATING INCOME 88,051,950 88,193,222 8,737,986 6,246,828 (858,383) 3,814,368 13,739,235 12,468,871 - - - - - - - - 175,946,657 (132,314,640) (17,099,124) 205,670,020 (152,721,306) (19,729,480) 183,942,104 (161,165,734) (28,022,927) 201,473,331 (183,447,614) (30,891,391) 920,281,398 (550,446,696) (31,323,805) 947,480,143 (561,141,752) (36,651,655) 292,155,057 (244,654,216) (13,883,076) 334,819,739 (280,417,334) (32,820,660) 317,593,035 (282,155,547) (10,925,369) 348,613,018 (306,380,130) (21,624,471) 207,387,264 (158,070,042) (29,633,552) 230,001,986 (164,953,714) (40,816,144) 26,532,893 33,219,233 (5,246,557) (12,865,674) 338,510,897 349,686,736 33,617,765 21,581,745 24,512,119 20,608,417 19,683,670 24,232,128 NON OPERATING INCOME Non Operating Incomes Non Operating Expenses Price-Level Restatement and Exchange Difference 37,007,722 (105,048,067) 8,702,442 54,275,168 (170,433,168) (15,061,589) 665,749 (885,294) (72,199) 1,498,018 (2,339,354) 373,881 4,056,508 (2,082,635) 101,397 2,010,666 (17,893,047) (220,717) 795,599 (958,067) (125,187) 552,693 (2,297,744) (232,067) 19,302,821 (1,194,214) (54,797,992) 24,929,676 (3,130,606) 17,079,039 5,350,225 (8,431,247) 8,638,287 (9,600,874) 13,500,376 (22,847,834) 25,252,753 (38,838,275) 77,578,673 (266,114,576) 9,530,894 134,080,395 (454,230,585) 3,591,022 14,639,138 (12,713,717) - 21,342,280 (18,982,696) - 20,608,340 (171,749,126) - 131,489,825 (171,653,036) - 26,491,157 (54,642,023) - 35,860,161 (256,137,540) - NET NON OPERATING INCOME (59,337,903) (131,219,589) (291,744) (467,455) 2,075,270 (16,103,098) (287,655) (1,977,118) (36,689,385) 38,878,109 (3,081,022) (962,588) (9,347,458) (13,585,522) (179,005,009) (316,559,168) 1,925,421 2,359,584 (151,140,786) (40,163,211) (28,150,866) (220,277,379) Income Tax Extraordinary Items Minority Interests Negative Goodwill Amotizations (413,697) - 10,246,030 12,923,175 (9,119,064) - (11,370,491) 32,204,241 (2,500,033) - (3,528) - (1,339,277) - (97) - 1,831 - 88,035 - 2,076,500 - 176,647 (2,631,852) - (74) - (2,396,330) (33,875) 180 - - - - - - - - - (10,391,425) - (5,231,005) 1,028,071 (12,328,477) - (7,982,755) 1,256,602 (12,507,371) - - - 34,738,388 - - - (27,378,083) - (69,586,444) 15,589,551 (71,334,682) (11,039,393) (46,943,077) 86,777,337 (22,052,572) - (9,284,172) - (20,435,760) (11,526,129) 3,463,437 - 27,855,192 - - - 10,452,239 - - - (4,637,460) - 4,422,643 - (4,536,208) - (8,923,114) 9,268,830 Profit (Loss) for the Period 51,469,555 (31,311,681) 5,942,681 4,439,999 1,306,753 (10,035,583) 10,819,654 8,061,728 (36,689,385) 38,878,109 8,857,512 13,202,015 (27,101,386) 8,287,192 78,130,912 (9,412,247) 4,206,442 (4,557,123) (98,773,475) (9,102,555) (8,682,013) (200,235,743) Summarized Cash Flow Statements by Subsidiary As of December 31, 2002 and 2003 in thousands of Chilean Pesos Net Positive (Negative) Cash Flow from Operating Activities Net Positive (Negative) Cash Flow from Financing Activities Net Positive (Negative) Cash Flow from Investment Activities CHILECTRA SYNAPSIS 2003 91,383,964 9,321,372 (65,404,116) 2002 99,482,237 (145,522,146) 46,561,866 2003 3,559,475 (4,487,464) 878,011 2002 4,345,395 (3,275,352) (1,620,845) I, MANSO DE VELASCO 2002 2003 16,092,471 11,268,286 (12,003,069) (697,143) (4,009,355) (10,629,045) CAM 2003 12,065,074 (1,339,396) (10,357,136) 2002 6,190,916 135,812 (7,512,169) ENERSIS INTERNACIONAL 2002 2003 27,922,144 2,462,705 (30,311,459) 9,767,126 (10,813,081) 4,380,842 NET POSITIVE (NEGATIVE) CASH FLOW FOR THE PERIOD Effect of inflation on cash and cash equivalent 35,301,220 (779,643) 521,957 (1,515,014) (49,978) (11,867) (550,802) (58,658) (57,902) (5,049) 80,047 (10,655) 368,542 (153,801) (1,185,441) (231,011) 3,334,887 15,490 NET VARIATION OF CASH AND CASH EQUIVALENT 34,521,577 (993,057) (61,845) (609,460) (62,951) 69,392 214,741 (1,416,452) 3,350,377 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 7,100,605 8,093,662 2,357,797 2,967,257 127,872 58,480 1,606,433 3,022,885 45,034 73,390 (60,230) 13,160 31,874 DISTRILIMA EDESUR ENDESA CHILE LUZ DE BOGOTÁ CERJ INVESTLUZ 2003 50,837,198 (31,263,110) (19,495,401) 2002 48,563,725 (22,219,306) (26,003,367) 2003 50,711,505 (14,186,987) (30,560,505) 2002 65,006,965 (11,053,226) (41,397,718) 2003 280,072,307 (320,914,687) 111,617,036 2002 355,730,731 (221,161,631) (114,522,729) 2003 37,392,809 15,567,681 (15,843,549) 2002 85,185,679 (99,688,625) (28,752,820) 78,687 - 341,052 - 5,964,013 - 12,556,021 - 70,774,656 (31,221,612) 20,046,371 9,131,221 37,116,941 (2,048,019) (43,255,766) (10,600,838) 2003 85,570,106 (11,892,411) (23,083,381) 50,594,314 (59,813,803) 2002 67,572,188 (25,529,500) (34,745,748) 2003 88,530,590 1,607,135 (29,479,537) 2002 43,221,769 (4,780,266) (28,263,226) 7,296,940 958,674 60,658,188 (41,959,957) 10,178,277 (4,085,680) 78,687 341,052 5,964,013 12,556,021 39,553,044 29,177,592 35,068,922 (53,856,604) (9,219,489) 8,255,614 18,698,231 6,092,597 1,038,441 928,224 13,952,428 2,423,093 124,093,634 94,916,042 29,399,933 89,791,864 13,225,613 7,909,928 8,231,615 8,313,931 FINAL BALANCE OF CASH AND CASH EQUIVALENT 41,622,182 7,100,605 2,295,952 2,357,797 64,921 127,872 1,821,174 1,606,433 3,395,411 45,034 1,117,128 1,269,276 19,916,441 14,979,114 163,646,678 124,093,634 64,468,855 35,935,260 4,006,124 16,165,542 26,929,846 14,406,528 Enersis Management CHAIRMAN Pablo Yrarrázaval Phone (56-2) 353 4663 CHIEF EXECUTIVE OFFICER Mario Valcarce Phone (56-2) 353 4613 REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Phone (56-2) 353 4684 REGIONAL FINANCIAL OFFICER Alfredo Ergas Phone (56-2) 630 9587 REGIONAL ACCOUNTING OFFICER Fernando Isac Phone (56-2) 353 4685 COMMUNICATIONS OFFICER José L. Domínguez Phone (56-2) 353 4666 AUDITING OFFICER Francisco Herrera Phone (56-2) 353 4647 HUMAN RESOURCES OFFICER Francisco Silva Phone(56-2) 353 4610 GENERAL COUNSEL Domingo Valdés Phone (56-2) 353 4631 Investor and Shareholder Relations CHIEF INVESTMENTS AND RISKS OFFICER Ricardo Alvial Phone (56-2) 353 4682 CITIBANK NY Ricardo Szlezinger Phone (1-212) 657 7533 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 www.enersis.cl Santa Rosa 76, Santiago-Chile (56 2) 353 4400 - (56 2) 378 4400 Fax: (56 2) 378 4788 2003 annual report Enersis generated energy 42,929 GWh +4.6% i s s r e n E t r o p e r l a u n n a 3 0 0 2 debt reduction US$ 2,573 million -28.7% distribution sales 49,677 GWh +4.2% S A N T I A G O S T O C K E X C H A N G E ENERSIS N E W Y O R K S T O C K E X C H A N G E ( N Y S E ) ENI L A T I N A M E R I C A N S T O C K E X C H A N G E O F M A D R I D S T O C K E X C H A N G E ( L A T I B E X ) XENI ENI LISTED NYSE Enersis Management CHAIRMAN Pablo Yrarrázaval Phone (56-2) 353 4663 CHIEF EXECUTIVE OFFICER Mario Valcarce Phone (56-2) 353 4613 REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Phone (56-2) 353 4684 REGIONAL FINANCIAL OFFICER Alfredo Ergas Phone (56-2) 630 9587 REGIONAL ACCOUNTING OFFICER Fernando Isac Phone (56-2) 353 4685 COMMUNICATIONS OFFICER José L. Domínguez Phone (56-2) 353 4666 AUDITING OFFICER Francisco Herrera Phone (56-2) 353 4647 HUMAN RESOURCES OFFICER Francisco Silva Phone(56-2) 353 4610 GENERAL COUNSEL Domingo Valdés Phone (56-2) 353 4631 Investor and Shareholder Relations CHIEF INVESTMENTS AND RISKS OFFICER Ricardo Alvial Phone (56-2) 353 4682 CITIBANK NY Ricardo Szlezinger Phone (1-212) 657 7533 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 www.enersis.cl Santa Rosa 76, Santiago-Chile (56 2) 353 4400 - (56 2) 378 4400 Fax: (56 2) 378 4788 2003 annual report Enersis generated energy 42,929 GWh +4.6% i s s r e n E t r o p e r l a u n n a 3 0 0 2 debt reduction US$ 2,573 million -28.7% distribution sales 49,677 GWh +4.2% S A N T I A G O S T O C K E X C H A N G E ENERSIS N E W Y O R K S T O C K E X C H A N G E ( N Y S E ) ENI L A T I N A M E R I C A N S T O C K E X C H A N G E O F M A D R I D S T O C K E X C H A N G E ( L A T I B E X ) XENI ENI LISTED NYSE 

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