Enel Americas
Annual Report 2004

Plain-text annual report

2 0 0 4 A N N U A L R E P O R T / E N E R S I S 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) 816 6852 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 S I S R E N E / T R O P E R L A U N N A 4 0 0 2 Santa Rosa 76, Santiago - Chile (56 2) 353 4400, (56 2) 378 4400 Fax: (56 2) 378 4788 w w w. e n e r s i s . c l 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 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 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) 816 6852 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 S I S R E N E / T R O P E R L A U N N A 4 0 0 2 Santa Rosa 76, Santiago - Chile (56 2) 353 4400, (56 2) 378 4400 Fax: (56 2) 378 4788 w w w. e n e r s i s . c l A N N U A L R E P O R T 2 0 0 4 / E N E R S I S C O N T E N T S 4 1 0 1 2 1 8 2 4 2 7 2 8 2 9 3 2 3 4 3 7 4 2 44 4 5 4 6 4 8 5 2 5 6 6 0 6 2 6 6 7 0 7 4 7 8 8 2 8 8 9 1 9 4 9 7 9 8 CHAIRMANS' LETTER TO SHAREHOL DE RS HIGHLIGHTS OF 2004 THE COMPANY OWNERSHIP AND CONTROL BOARD OF DIRECTORS DIRECTORS’ COMMITTEE ORGANIZATIONAL STRUCTURE ENERSIS MANAGEMENT TEAM CULTURAL ACTIVITIES FINANCIAL ACTIVITIES BUSINESSES INVESTMENT AND FINAN CING POL ICY FOR 200 4 COMPARATIVE FINANCIAL S TATEME N TS CORPORATE STRUCTURE ENERSIS GROUP STRUCTURE ENDESA CHILE GROUP STRUCTUR E ELECTRICITY GENERATION ENDESA CHILE ENDESA FORTALEZA ELECTRICITY DISTRIBUTION COMPARATIVE OPERATIN G DATA CHILECTRA EDESUR EDELNOR CERJ (AMPLA) COELCE CODENSA OTHER BUSINESSES SYNAPSIS CAM INMOBILIARIA MANSO DE VELASC O DECLARATION OF RESPON SIB ILITY OTHER SUBSIDIARY AND ASS OC IATE C OMPANIE S 1 13 COMMERCIAL RELATIONS W ITH SU B SIDIARY AND AS SOCIATE COMPAN IES 1 15 2 57 2 97 FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATE MENTS UNCONSOLIDATED F INANCIAL STATE MENTS FINANCIAL STATEMENTS OF S UBS IDIARY C OMPANIE S 3 Ralco hydroelectric plant. N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O 4 C H A I R M A N S ’ L E T T E R T O S H A R E H O L D E R S It is an honor for me to inform you of the principal activities of Enersis and its subsidiary companies during 2004 which have been summarized in this Annual Report which is presented for your consideration. 2004 was characterized as being one of consolidation of our financial recovery nationally and internationally following the making of the necessary timely adjustments in order to face the economic and social reality of the markets in which we operate. Year after year, we have been setting realistic targets which we have fully met. 2004 will remain engraved in the history of our Group for being one of take-off in terms of good financial results. We had already, in 2003, made significant achievements with profits of Ch$12,780 million, but these have now trebled to Ch$44,308 million in 2004. This result speaks for itself with respect to the good performance of Enersis and its subsidiaries throughout the whole electricity business chain and in the five countries where the Group has a presence. This is also reflected in the company’s operating income which increased 15.4% to Ch$634,202 million. Also notable was the 5.5% increase in electricity sales, both in generation and distribution, which confirms the projections made by our companies for achieving sustained growth within that range. The continuous increase of our distribution customers means that today we have close to 11 million electrical connections in the six cities where we provide electricity. We are constantly making improvements which we can measure, for example, in the increase in labor productivity, which grew by 6.4% to 1,521 customers per employee. But these good signs are also related to projects that our subsidiaries ventured on in 2004, including one that marks a milestone for us. I refer to the inauguration and start-up of Endesa Chile’s Ralco project, an unprecedented event in the history of Chile as it is the largest hydroelectric plant in the country which provides important energy support for the Central Grid System (SIC) with a maximum capacity of 690 MW. This has been completed despite many years of unfounded criticisms and has managed to combine respect for the environment with unbeatable solutions for the whole Pehuenche population that was affected by the passage of modern times. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 5 This hydroelectric plant joins the outstanding contribution made by the Endesa Fortaleza plant in Ceará State in Brazil which started operating in early 2004 and added 319 MW of capacity for sustaining the electricity needs of north-eastern Brazil. Just as the balance sheet reflects good situation, so do the financial ratios which continue to show considerable improvements. This is reflected in the healthy financial structure of Enersis whose liquidity increased and access to the financial markets improved. Particularly notable was the successful debt renegotiation in November 2004 when Enersis signed a loan agreement for US$ 350 million for the refinancing of the company’s debts. This new loan has substantially better conditions than the previous ones, with a Libor interest margin of 37.5 basis points compared to the previous margin of 115 basis points, and a term extended from 2006 to 2008. This new financial reality allows the Enersis Group to have a maturity pattern that better matches the characteristics of the electricity market where it operates. And what is even better, it has enabled the group to reduce its average financial debt last year by some US$1,228 million. One of the key improvements in the financial field has been the favorable change in EBITDA which has grown strongly, increasing over the last two years by more than US$450 million to a total of US$1,831 million at December 31. The perception of risk therefore has improved ostensibly, a situation noted by the credit-rating agencies which have begun to raise the company’s rating. This occurred together with a rise in the share price and the reduction in risk spreads, both in the cost of bank borrowings and the risk premium demanded on the company’s bonds. The improved liquidity explains why Enersis’s shares are more sensitive to the decisions of investors in the face of economic or market conditions. This was evident from the rise in the share price which ended the year at Ch$93.66, an 8.9% increase over the year, while the ADR rose 15.6% to US$8.51. In other hand it is a matter of satisfaction to know that our professional teams have been improving internal controls and procedures in order to comply with the requirements of the Sabarnes Oxley Act, concluding that these controls and procedures are effective to a reasonable level of reliability for the C H A I R M A N S ’ L E T T E R T O S H A R E H O L D E R S 6 collection, analysis and publishing of the information required from the company. In the same context, the finance management developed a so-called regulations and procedures project which is an extension of the rigor of that law to all aspects of the company’s financial management. With respect to our shareholders, we are sure we have done an efficient job in communicating with them and keeping them informed of our company’s actions. This was reflected in two important prizes received during the year. The first place, that was won for the investor relations web site, in the category TOP 5, “Best Investor Relations Website” awarded by the company MZ Award in this part of the world, called “Southern Cone”, which consists of all Spanish-speaking South American countries. The other award was given by the prestigious magazine “Institutional Investor” that annually gives prizes for Latin American companies whose shares are traded in the United States. Enersis was distinguished as being the best electrical company in the region in the Investor Relations category. The prize was instituted to recognize the company that has been known during the year for its optimum transparency and pro-activity in the provision of information to national and international investors in compliance with several strict requirements, while the evaluation criteria are based on a confidential survey made to the principal analysts and investors interested in the region. An important and symbolic landmark occurred on June 22 when the New York Stock Exchange celebrated Enersis Day, enabling our company to celebrate 11 years of trading on that important stock market and to present its new corporate image to the market. Enersis, being the star of the day, closed trading activities with the traditional “Ring the Bell”, in recognition of the years that the company has listed its stock on the New York Stock Exchange (NYSE). Considering Enersis’s position in the market, as the Latin American investment vehicle for Endesa (Spain), it decided to launch a new corporate image to reflect this relationship through a new logo. Since then, Enersis has a renewed corporate image that strongly and clearly expresses the international support provided by one of the world’s largest electricity groups. In the social field, I should mention the impetus with which our companies are tackling their commitment with their surroundings, the environment, their communities and customers. Social 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 7 responsibility today is a pillar of our actions as demonstrated by the numerous actions being carried out day by day in various aspects directly or indirectly affecting our society, which speaks very well for our company as it reaffirms the business maturity and balance with the environment in which we carry on our business. We are making dozens of contributions in social, cultural, educational and environmental aspects. A social responsibility policy has been percolating little by little through the Group and the efforts of all our companies have focused on the matters that are most closely related to their surroundings and direct areas of action. Pablo Yrarrázaval Valdés Chairman of Enersis Despite the many actions in the social responsibility area, we can point out projects like “Illuminating Churches in the South of the World” which, in four years, has managed to illuminate and adorn 47 churches and religious temples in Chile, Colombia and Peru. Education and information on electricity is also a matter that is strengthened every year, for which our companies have been especially dedicated through visitor centers and inter-active showrooms for the better teaching of children, young people and even adults. The subsidiaries in Chile have been involved in important projects. The best example is Endesa Chile’s Fundación Pehuén, an integral project that has spent ten years working for the welfare of the Pehuenche families in the Upper Bío Bío, near the Ralco plant. The generator is also involved in the Huinay Project developed in Chile’s extreme south through a cientific ofield station unique to the continent for the study of biodiversity over an area of 35,000 square kilometers. The contributions of the Chilectra subsidiary include a dozen activities in various cultural aspects, from the opening of its photographic archives to the whole community to arranging a successful national poetry competition. However, the most notable action in this area is its general sponsorship of Santiago’s International Book Fair, the largest cultural show in Chile and involving an agenda of more than 200 book-related artistic-cultural expressions over two weeks. Important changes have been made in our companies relating to their internal organization. In some cases, these have implied complicated restructurings that have been the only way to move ahead in the process of optimization and innovation, which is the challenge that our companies have in an ever-more competitive world. C H A I R M A N S ’ L E T T E R T O S H A R E H O L D E R S 8 The most concrete examples, among many, are in the distribution companies Chilectra and Cerj. In both cases, but with their particularities, enormous efforts have been made to modernize performance and make it more dynamic, in order to successfully face the demanding service quality standards that the market imposes. In Chile, under the slogan “Chilectra 21st Century”, the distributor has made internal and external changes in all service areas and a long-term challenge which coincides with its declaration of principles of being the leading company in distribution, the sale of electricity and related services, recognized and valued alike by its customers, employees, shareholders and the community. For its part, the Río de Janeiro State distributor, Cerj, completely changed its image and became known as Ampla. This, together with an effort to optimize the technical and commercial work, represents a renewed challenge to position the company closer to and with a better service for its more than 2 million customers. We must recognize the contributions made by thousands of employees who daily give of their best to make our performance a corporate success, adjusting to the changes in the business and facing the challenges with enthusiasm and creativity. We should also thank the contributions of those executives and professionals who have left, as well as welcome, the new wisdom that enters full of ideas and spirit for making this the most important private-sector multinational electricity group in Latin America. I should also mention the results of the working climate survey made to all employees of Endesa, both in Europe and in Latin America. In our continent, the satisfaction indicator was 73%, compared to 62% in 2002 when the previous survey was made. In global terms, the opinions have improved to a greater or lesser extent in all the matters analyzed, especially those relating to customer orientation and valuation by the person directly responsible hierachically, all indicate that internally (part of our social responsibility), improvements and efforts have been made to further optimize the situation of our employees who today total over eleven thousand people. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 9 This is a brief summary of a year which was very positive for us and which, without any doubt, opens up for us the prospect of future growth in all areas of our electricity business, confident that we are following the correct path for making this company a model in corporate management, concerned about its customers, with an important role in society and seeking a just return for you who have placed your trust in this company. We thank you for this trust and you may be assured that our commitment will be to improve day by day to the satisfaction of everyone: shareholders, customers, the community and employees. Pablo Yrarrázaval Valdés Chairman ENERSIS S.A. C H A I R M A N S ’ L E T T E R T O S H A R E H O L D E R S 10 H I G H L I G H T S O F 2 0 0 4 THE FO LLOWI N G ARE THE E VENTS O F IMP O RTANCE I N 20 04 • Net income for the year increased significantly by 246.7%, from Ch$12,780 million to Ch$44,308 million. • Consolidated operating income rose by 15.4% from Ch$549,498 million to Ch$634,202 million. • Generation business energy sales increased by 5.5%, from 50,634 GWh to 53,444 GWh. Those of the distribution business increased by 5.5% from 49,577 GWh to 52,314 GWh. • Labor productivity in electricity distribution improved by 6.4% from 1,429 to 1,521 customers per employee, confirming the Group’s progress in efficiency. • The customers served by Group companies increased by 4.2% from 10.4 million to 10.9 million, in line with average annual demographic growth. • The Endesa Fortaleza thermal plant, in north-east Brazil, started operating in January 2004 with a maximum installed capacity of 319 MW. • The Ralco hydroelectric plant, of the subsidiary Endesa Chile, was commissioned in September 2004. Its installed capacity is 690 MW, thus allowing it to strengthen Chile’s Central Grid System (SIC) by providing 9% of its total energy. • The value of Enersis increased by 8.9% during the year while the value of its ADR grew by 15.6%, taking into account the appreciation of the Chilean peso against the US dollar. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 11 • The healthy financial structure of Enersis enabled the company to improve its liquidity and its access to the financial markets. An important confirmation of this is the new market perception which allowed the company to renegotiate its debt at a tenth of the margins existing in 2003. • Enersis received first prize as the Investor Relations Best Web Site in the Southern Cone, reflecting the excellence in this matter in the Electrical Companies category and as the best electricity company in the region in the Investor Relations category. • In recognition of its successful presence in the United States market, Enersis celebrated 11 years of listing on the New York Stock Exchange (NYSE) with a symbolic ceremony called “Enersis Day” at that exchange. Representatives of that stock market spoke of Enersis as the most innovative and traded company among Chilean quoted companies. • Enersis renewed its corporate image which now expresses the international support provided by Endesa, its controlling shareholder, strongly and clearly by integrating in its logo the characteristic sparkle of the Spanish multinational. The launch of this new logo was made in June 2004 at the “Enersis Day” ceremony. H I G H L I G H T S O F 2 0 0 4 12 T H E C O M P A N Y Name Kind of Company Tax No. Address Telephones Fax PO Box Web Site Electronic Mail Securities Registry No. External Auditors Subscribed and Paid Capital (ThCh$) : : : : : : : : : : : : ENERSIS S.A. Open corporation 94,271,000 - 3 Santa Rosa No76, Santiago, Chile (56-2) 353 4400 - (56-2) 378 4400 (56-2) 378 4788 1557, Santiago www.enersis.com comunicacion@e.enersis.cl Nº 175 Deloitte & Touche 2,283,404,124 Chilean Stock Exchanges Ticker Code : ENERSIS New York Stock Exchange Ticker Code Madrid Stock Exchange Ticker Code ADR Program Custodian Bank ADR Program Depositary Bank Latibex Custodian Bank Latibex Link Entity Chilean Credit Rating Agencies International Credit Rating Agencies : : : : : : : : ENI XENI Banco de Chile Citibank N.A. Banco Santander Santander Central Hispano Investment S.A Feller Rate, Fitch, Humphrey’s Fitch, Moody’s y Standard & Poor’s 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 13 N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O Ralco hydroelectric plant. 14 City of Niteroi that receives çelectricity from Cerj (Ampla) Constitution Details: The company predecessor of Enersis S.A. was constituted with the name of Compañía Chilena Metropolitana de Distribución Eléctrica S.A., under public deed dated June 19, 1981 signed before the Santiago notary Patricio Zaldívar Mackenna and amended by public deed dated July 13 the same year and signed before the same notary. Its existence was authorized and its bylaws approved by Resolution No.409-S of July 17, 1981 of the Superintendency of Securities and Insurance (SVS). The extract of these two documents was inscribed in the Santiago Trade Register (folio 13,099 No.7,269) for 1981, and was published in the Official Gazette on July 23, 1981. The bylaws have since been the subject of various amendments. On August 1, 1988, the company became known as Enersis S.A.. The last amendment is that appearing in a public deed dated May 19, 2004 signed before the Santiago notary Patricio Zaldívar Mackenna, whose extract was inscribed in the Santiago Trade Register (folio 16,876 No.12,702) for 2004, and was published in the Official Gazette on June 5, 2004. Historical Summary: On June 19, 1981, Compañía Chilena de Electricidad S.A. created a new corporate structure resulting in a parent company and three subsidiary companies. One of them was Compañía Chilena Metropolitana de Distribución Eléctrica S.A. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 15 CIEN, interconnection line between Brazil and Argentina. In 1985, under the privatization policy set by the Chilean government, the transfer of the share capital of Compañía Chilena Metropolitana de Distribución Eléctrica S.A. to the private sector was begun, which process was completed on August 10, 1987. In this process, pension fund management companies (AFPs), employees of the same company, institutional investors and thousands of small investors became shareholders in the company. The organizational structure was based on operative activities or functions whose achievements were evaluated functionally, and its profitability was limited by a tariff scheme because of the company’s exclusive dedication to electricity distribution. In 1987, the company’s board proposed a division of the different activities of the parent company. Four subsidiaries were therefore created to allow their management as business units with their own objectives, thus expanding the business of the company into other non-regulated businesses but still related to the main business. This division was approved by an extraordinary shareholders’ meeting held on November 25, 1987 which determined its new corporate objects. Compañía Chilena Metropolitana de Distribución Eléctrica S.A. therefore came to have the nature of an investment company. On August 1, 1988, as agreed by the ordinary shareholders’ meeting of April 12, 1988, one of the companies born from the division changed its name to Enersis S.A. T H E C O M P A N Y 16 Enersis Corporate Purpose: The purpose of the company are to explore, develop, operate, generate, distribute, transmit, transform and/or sell energy in any of its forms or nature, in Chile or abroad, either directly or through other companies, and activities in telecommunications and the provision of engineering in Chile or abroad. It also has the object of investing and managing its investments in subsidiary and associate companies that are generators, transmitters, distributors or sellers of electrical energy or whose business is related to any of the following: (i) energy in any of its forms or nature; (ii) the supply of public utilities or those which have energy as their principal input; (iii) telecommunications and information technology; and (iv) internet trading activities. In compliance with its principal object, the company shall develop the following functions: a) promote, organize, constitute, modify, dissolve or liquidate companies of any kind whose objects are related to those of the company; b) propose to the subsidiary companies investment, financing and commercial policies, as well as accounting systems and criteria which they should follow; c) supervise the performance of its subsidiaries; d) provide its subsidiary or associate companies with the financial resources necessary for developing their businesses and provide its subsidiaries with management services, financial, commercial, technical and legal advice, auditing services and in general services of any kind that appear necessary for their best performance. Apart from its principal object and acting always within the limits set by the Investment and Financing Policy approved by the ordinary shareholders’ meeting, the company may invest in i) the acquisition, exploitation, construction, rental, administration, intermediation, commercialization and disposal of all kinds of movable and immovable assets, directly or through subsidiary or associate companies, ii) all kinds of financial assets including shares, bonds and debentures, trade paper and in general all kinds of securities and contributions to companies, whether directly or through subsidiary or associate companies. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 17 N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O Endesa Fortaleza plant. 18 O W N E R S H I P A N D C O N T R O L OWN ERSH IP STRUC TU RE The capital of the company is divided into 32,651,166,465 32,651,166,465 shares were subscribed, paid and held at shares of no par value and all of the same and sole series. December 31, 2004, in the following manner: S HA R E HO L DE R NUM BER O F SHAR EHOLD ER S NUM BER O F SHA RE S % Endesa Internacional S.A. AFP’s ADRs (Citibank N.A. per SVS Circular No.1375) Stockbrokers, Mutual Finds & Insurance Companies Foreign Investments Funds Others Total 1 6 1 108 22 9,633 9,771 19,794,583,473 5,420,562,840 3,317,372,350 2,447,878,253 248,386,274 1,422,383,275 32,651,166,465 60.62 16.60 10.16 7.50 0.76 4.36 100.00 Identification of the controllers The twelve largest shareholders of the company In accordance with the definition in Title XV of Law 18,045, Enersis was owned by 9,771 shareholders at December 31, the controller of the company, Endesa S.A, Spain, holds 60.62% 2004. The twelve largest were: of the share capital of Enersis through its control of Endesa Internacional S. A. NA M E TAX NO. NUM BER O F SHA RE S Endesa Internacional S.A. Citibank N.A. (ADRs & Chap.XIV) AFP Provida S.A. AFP Habitat S.A. AFP Cuprum S.A. AFP Santa María S.A . AFP Summa Bansander S.A. Banchile Corredores de Bolsa S.A. AFP Planvital S.A. Santander Investment S.A. Corredores de Bolsa BCI Corredor de Bolsa S.A. Larraín Vial S.A. Corredores de Bolsa Sub total 12 Shareholders Other 9,759 Shareholders Total 8,771 Shareholders 59,072,610-9 97,008,000-7 98,000,400-7 98,000,100-8 98,001,000-7 98,000,000-1 98,000,600-K 96,571,220-8 98,001,200-K 96,683,200-2 96,519,800-8 80,537,000-9 19,794,583,473 3,779,499,374 1,909,012,845 1,118,467,473 836,459,721 687,024,387 678,932,396 475,856,976 190,666,018 163,755,393 137,579,171 102,285,086 29,874,122,313 2,777,044,152 32,651,166,465 % 60.62% 11.58% 5.85% 3.43% 2.56% 2.10% 2.08% 1.46% 0.58% 0.50% 0.42% 0.31% 91.49% 8.51% 100.00% 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 19 More important changes in shareholdings The more important changes in Enersis shareholding during 2004 were: NA M E Citibank N.A. (ADRs & Chap.XIV) AFP Provida S.A. AFP Habitat S.A . AFP Cuprum S.A. AFP Summa Bansander S.A . Banchile Corredores de Bolsa S.A. AFP Planvital S.A. Santander Investment S.A. Corredores de Bolsa BCI Corredor de Bolsa S.A. Larraín Vial S.A. Corredores de Bolsa TAX NO 97,008,000-7 98,000,400-7 98,000,100-8 98,001,000-7 98,000,600-K 96,571,220-8 98,001,200-K 96,683,200-2 96,519,800-8 80,537,000-9 Cía de Seguros de Vida Consorcio Nacional de Seguros 99,012,000-5 Fondo Mutuo Banchile Acciones Bolsa Electrónica de Chile de Valparaíso The Chile Fund Inc. Fondo Mutuo Santander Genesis Chile Fund Limited 96,767,630-6 96,551,730-8 59,028,400-9 96,667,040-1 59,028,210-3 SHARE S A T 31 /1 2/20 03 3,131,712,672 2,054,685,902 679,461,335 912,855,104 729,762,948 673,750,034 129,016,633 138,085,786 150,826,312 138,605,309 213,109,789 54,821,604 178,161,247 97,800,180 55,015,178 0 SHARE S A T 31 /1 2/20 04 3,779,499,374 1,909,012,845 1,118,467,473 836,459,721 678,932,396 475,856,976 190,666,018 163,755,393 137,579,171 102,285,086 87,289,207 78,423,284 76,557,076 76,375,294 76,312,404 76,000,000 % CHANGE 20.7% (7.1%) 64.6% (8.4%) (7.0%) (29.4%) 47.8% 18.6% (8.8%) (26.2%) (59.0%) 43.1% (57.0%) (21.9%) 38.7% ND Share transactions There were no purchases nor sales of shares in the company during 2004 made by the company’s chairman, directors, chief executive officer, senior executives and inspectors of accounts. Neither were there any purchases or sales of company shares by the majority shareholders. O W N E R S H I P A N D C O N T R O L 20 SANTIAG O STO CK E XCHAN GE, CH ILE AN ELEC TRO N IC STO CK E XCHAN GE AN D VALPAR AISO STO CK E XCHAN GE Transactions on the stock exchanges where Enersis shares Quarterly stock market information for the last three years are traded in Chile, through the Santiago Stock Exchange, Chilean Electronic Stock Exchange and Valparaiso Stock Exchange, and in During 2004, 6,931 million shares were traded on the Santiago the United States of America and Spain, through the New York Stock Stock Exchange, equivalent to Ch$568,408 million. The closing share Exchange (NYSE) and the Latin American Stock Market on the Madrid price at December was Ch$93.66. Stock Exchange (Latibex) respectively, are detailed as follows: SANTIAGO ST OCK E XCHA N GE 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 1st Quarter 2003 2nd Quarter 2003 3rd Quarter 2003 4th Quarter 2003 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 4th Quarter 2004 UNITS 512,037,133 474,079,058 692,521,240 684,639,252 435,639,838 2,037,701,115 2,615,141,119 2,949,415,326 1,413,791,567 1,032,271,059 2,236,312,231 2,248,285,905 AM OUNT ( CH$) 72,041,084,807 48,911,115,424 54,285,443,986 44,147,517,186 26,289,331,211 126,168,454,878 183,158,237,990 241,758,079,458 114,464,836,990 70,883,441,314 180,354,445,209 202,705,192,331 AVE RAG E PRICE 140.70 103.17 78.39 64.48 60.35 61.92 70.04 81.97 80.96 68.67 80.65 90.16 During the year, 2,083 million shares were traded on the Chilean Electronic Stock Exchange, equivalent to Ch$173,813 million. The closing share price at December was Ch$94.50. CHIL EAN ELECT RO NIC EX CH ANG E 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 1st Quarter 2003 2nd Quarter 2003 3rd Quarter 2003 4th Quarter 2003 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 4th Quarter 2004 UNITS 269,920,400 190,914,137 175,890,647 209,062,958 129,900,766 701,457,496 798,685,064 1,073,262,130 534,792,384 219,310,562 565,021,305 763,885,464 AM OUNT ( CH$) 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 43,742,052,276 16,749,908,612 44,917,950,788 68,403,030,387 AVE RAG E PRICE 139.72 102.59 76.77 62.99 60.18 63.51 70.64 81.27 81.79 76.38 79.50 89.55 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 21 During the year, 58 million shares were traded on the Valparaiso Stock Exchange, equivalent to Ch$4,985 million. The closing share price at December was Ch$95.41. VALPARAI SO STO CK E XCH A NGE 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 1st Quarter 2003 2nd Quarter 2003 3rd Quarter 2003 4th Quarter 2003 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 4th Quarter 2004 UNITS 18,797,002 7,970,306 22,259,663 9,087,665 9,976,687 16,722,391 20,788,077 22,763,455 17,400,165 15,688,115 12,719,018 12,601,377 AM OUNT ( CH$) 2,597,626,847 AVE RAG E PRICE 138.19 748,664,861 1,751,836,764 570,105,970 588,061,758 1,076,487,907 1,486,507,277 1,864,617,521 1,414,623,582 1,200,734,218 1,209,656,286 1,160,034,348 93.93 78.70 62.73 58.94 64.37 71.51 81.91 81.30 76.54 95.11 92.06 N E W YO RK STO CK E XCHAN GE ( NYSE) Enersis shares began to be traded on the New York Stock During 2004, 120 million ADRs were traded in the United Exchange (NYSE) on October 20, 1993. The ADR of Enersis consists States of America, equivalent to US$809 million. The closing ADR of 50 shares in the company and its ticker code in ENI. Citibank N.A. price was US$8.51. acts as the depositary bank and Banco de Chile as the custodian in Chile. NEW Y ORK S TO CK EX CHA NGE 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 1st Quarter 2003 2nd Quarter 2003 3rd Quarter 2003 4th Quarter 2003 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 4th Quarter 2004 AD R S 10,004,100 4,378,200 3,304,200 4,063,400 2,396,400 22,642,100 28,205,200 43,052,600 36,556,900 26,246,600 26,505,200 30,515,600 AM OUNT ( CH$) AVE RAG E PRICE 103,381,378 35,266,409 17,965,659 17,549,621 9,594,354 103,382,511 144,246,700 285,393,515 251,401,801 159,600,325 166,479,161 231,918,560 10.33 8.06 5.44 4.32 4.00 4.57 5.11 6.63 6.88 6.08 6.28 7.60 O W N E R S H I P A N D C O N T R O L 22 L ATI N A MERIC AN STO CK M ARKE T O F THE M AD RI D STO CK E XCHAN GE ( L ATI BE X) The shares of Enersis began to be traded on the Latin American During 2004, 3 million blocks were traded on Latibex, Stock Market of the Madrid Stock Exchange (Latibex) on December equivalent to €14 million. The closing price was €6.22. 17, 2001. The trading unit (block) for the company is 50 shares and its ticker code is XENI. Santander Central Hispano Bolsa S.A. S.V.B. acts as the link entity and Banco Santander as the custodian in Chile. LAT IB EX 1st Quarter 2002 2nd Quarter 2002 3rd Quarter 2002 4th Quarter 2002 1st Quarter 2003 2nd Quarter 2003 3rd Quarter 2003 4th Quarter 2003 1st Quarter 2004 2nd Quarter 2004 3rd Quarter 2004 4th Quarter 2004 BLO CKS AM OUNT ( CH$) AVE RAG E PRICE 547,410 735,956 1,168,892 1,332,800 1,674,520 1,590,018 289,159,472 36,196,071 599,507 665,930 713,812 589,448 6,513,823 6,439,734 6,518,111 6,028,207 6,217,505 6,210,510 1,246,411,078 207,310,744 3,288,305 3,377,061 3,688,468 3,455,069 11.90 8.75 5.58 4.52 3.71 3.91 4.31 5.73 5.49 5.07 5.17 5.86 D IVI D EN D P O LIC Y FO R 20 05 The board unanimously agreed to propose the following Compliance with this program, in terms of dividend, will be dividend policy for 2005 to the ordinary shareholders’ meeting of subject to the net income actually produced and to the results of Enersis, planned for April 8, 2005, projections periodically made by the company or the existence of certain conditions. To not distribute interim dividends against net income for the year and propose to the ordinary shareholders’ meeting to be held during the first four months of 2006 a final distribution of an amount equivalent to 50% of the net income for 2005. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 23 The following shows the dividends per share paid in recent years: DIVIDEND NO K IN D OF D I VID END DA TE OF CL OSING D ATE P AID CHILEA N P ESO S P ER SHAR E YEAR CHARGED TO 67 68 69 70 71 Interim Final Interim Final Final 02.20.98 05.07.98 11.20.98 05.11.99 04.19.01 02.26.98 05.13.98 11.26.98 05.17.99 04.25.01 0.800000 4.500000 1.600000 4.000000 1.806391 1997 1997 1998 1998 2000 D ISTRI BUTABLE E ARN I N GS M ATERIAL I N FO R M ATI O N The following shows the distributable earnings for the year: The material information reported during the year 2004 is set out in the accompanying financial statements. Net income for the year Amortization of negative goodwill Net income TH CH$ 44,307,596 (17,106,902) 27,200,694 Material information arising from previous years and which has influenced the company’s business included that of the financial and economic strengthening, capital increase and the signing of syndicated loans. SUM M ARY O F SHAREH O LD ERS’ COM MENTS AN D PRO P OSALS No comments were received by Enersis with respect to the business between January 1 and December 31, 2004 from the majority shareholders or groups of shareholders representing 10% or more of the issued shares with voting rights, in accordance with provisions of clause 74 of Law 18,046 and clauses 82 and 83 of the regulations of the Corporations Law. O W N E R S H I P A N D C O N T R O L 24 B O A R D O F D I R E C T O R S Enersis is managed by a Board of Directors of seven members who remain in their positions for a period of three years and may be re-elected. The current board was elected at the ordinary shareholders’ meeting held on March 31, 2003. CHAIRMAN Pablo Yrarrázaval Tax No:5.710.967-K Chairman of the Santiago Stock Exchange VICE CHAIRMAN: Rafael Miranda Tax No: 48.070.966-7 Industrial Engineer Instituto Católico de Artes e Industrias (ICAI) de Madrid DIRECTOR: Alfonso Arias Tax No: 48.087.945-7 Degree in Law & Economic & Business Sciences Universidad Complutense de Madrid DIRECTOR: José Luis Palomo Tax No: 48.085.073-4 Degree in Economic & Business Sciences, Law & Sociology Universidad de Madrid DIRECTOR: Ernesto Silva Tax No: 5.126.588-2 Commercial Engineer Pontificia Universidad Católica de Chile DIRECTOR: Hernán Somerville Tax No: 4.132.185-7 Lawyer Universidad de Chile DIRECTOR: Eugenio Tironi RUT: 5.715.860-3 Sociologist School of Senior Studies in Social Sciences, Paris, France SECRETARY: Domingo Valdés RUT: 6.973.465-0 Lawyer Universidad de Chile 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 25 D IREC TO RS’ REMU N ER ATI O N As required by clause 33 of the Corporations Law 18,046, the The amounts paid to Enersis directors as such, to members of ordinary shareholders’ meeting held on March 26, 2004 agreed the the committee and to those that performed as directors of subsidiaries remuneration of the board of Enersis for the year 2004. during 2004 are as follows: DIRECTOR Pablo Yrarrázaval Valdés Rafael Miranda Robredo José Luis Palomo Álvarez Alfonso Arias Cañete Ernesto Silva Bafalluy Hernán Somerville Senn Eugenio Tironi Barrios TOTAL BOARD OF ENERSIS 44,576 28,771 22,288 22,288 22,288 22,288 22,288 184,788 THOUSANDS OF PESOS AT DECEMBER 31, 2004 ENERSIS COMMITTEE 7,437 - - - 7,437 7,437 - 22,310 TOTAL 52,013 28,771 22,288 22,288 29,725 29,725 22,288 207,098 BOARD E XPENSES shareholders’ meeting. The current board of directors was elected in March 2003 and their terms expire in March 2006. The members The board made no use of the operating expense budget in of the board of directors do not have service contracts with Enersis 2004 that was approved by the ordinary shareholders’ meeting held or any of its subsidiaries that provide benefits upon termination of in March 2004. employment. BOARD PR AC TICES Chilean corporate law provides that a company’s board of directors is responsible for the management, administration and The current board of directors was elected at the Shareholders’ representation of a company in all matters concerning its corporate meeting dated March 31, 2003 for a period of three years. (For purpose, subject to the provisions of the company’s estatutos and the the period during which that person has served, please see “— A. stockholders’ resolutions. In addition to the estatutos, the Board of Directors and Senior Management” above). Directors have no service Directors of Enersis has adopted regulations and policies that guide contracts with Enersis. Corporate Governance our corporate governance principles. The most important of these regulations and policies are the following: The Internal Regulations on Conduct in Securities Markets, Enersis is managed by its executive officers under the direction approved by the Board on January 31, 2002, which determine the of its board of directors which, in accordance with the estatutos, or rules of conduct that must be followed by members of the Board of articles of incorporation and bylaws, of Enersis, consists of seven Directors, senior management and other managers and employees directors who are elected at an annual regular shareholders’ meeting. who, due to the nature of their job responsibilities, may have access Each director serves for a three year term and the term of each of the to sensitive or confidential information, with a view to contributing seven directors expires on the same day. Staggered terms are not to transparency and to the protection of investors. These regulations permitted under Chilean law. If a vacancy occurs on the board during are based on the principles of impartiality, good faith, placing the the three year term, the board of directors may appoint a temporary company’s interests before one’s own, and care and diligence in using director to fill the vacancy. In addition, the vacancy will trigger an information when acting in the securities markets. election for every seat on the board of directors at the next general B O A R D O F D I R E C T O R S 26 The Charter Governing Executives (“Estatuto del Directivo”), by two directors appointed by the controlling shareholder. Our Comité approved by the Board on May 28, 2003, and the Employees Code de Directores does not currently meet the independence requirements of Conduct, which develop our principles and values, establish the to which the Audit Committee of Enersis, will become subject on July rules governing dealings with customers and suppliers, and establish 31, 2005, or the additional independence requirements to which the the principles that should be followed by employees in their work, audit committees of U.S. companies are subject. including ethical conduct, professionalism and confidentiality. They also impose limitations on the activities our senior executives Under the NYSE corporate governance rules, the audit and other employees may undertake outside the scope of their committee of a U.S. company must perform the functions detailed employment with us, such as non-compete limitations. in the NYSE Listed Company Manual Rules 303A.06 and 303A.07. Non- U.S. companies are required to comply with Rule 303A.06 beginning The above regulations and rules reflect our core principles of July 31, 2005, but are not at any time required to comply with Rule transparency, respect for stockholders’ rights, and the duty of care 303A.07. We do not currently comply with these rules, but we expect and loyalty of the directors imposed by Chilean law. that when we become subject to Rule 303A.06, we will comply with both the independence and the function requirements of the rule. Compliance with NYSE Listing Standards on Corporate Governance Following is a summary of the significant differences between our corporate governance practices and those applicable to domestic Corporate Governance Guidelines The NYSE’s corporate governance rules require U.S. listed companies to adopt and disclose corporate governance guidelines. Chilean law does not contemplate this practice, other than with issuers under the corporate governance rules of the New York Stock respect to the codes of conduct described above. Exchange. Because we are a “controlled company” under NYSE rules (a company of which more than 50% of the voting power is held by Committees and Other Advisory Bodies an individual, a group or another company), we would not, were we to be a U.S. company, be subject to the requirement that we have a The Comité de Directores majority of independent directors, or nomination and compensation The Comité de Directores is composed of three members who committees, are simultaneously directors of the Company. It performs the following functions: Independence and functions of the Audit Committee • examination of Annual Report, Financial Statements and Under the NYSE corporate governance rules, all members the Reports of the External Auditors and Inspectors of the of the Audit Committee must be independent. We will be subject Accounts; to this requirement effective July 31, 2005. As required by Chilean • formulation of the proposal to the Board of Directors for the Law, Enersis has a Comité de Directores composed of three directors. selection of external auditors and private rating agencies; Although Chilean Law requires that a majority of the Comité de • examination of information related to operations by the Directores (two out of three members) must be composed of directors Company with related parties and/or related to operations who were not nominated by the controlling shareholder and did not in which the Company board members or relevant executive seek votes from the controlling shareholder (a “non-control director”), officers may have personal interest; it permits the Comité de Directores to be composed of a majority or • examination of the remuneration framework and compensation even a unanimity of control directors, if there are not sufficient non- plans for managers and executive officers; and control directors on the board to serve on the committee. Currently, • any other function mandated to the committee by the estatutos, our Comité de Directores is composed by one non-control director and the board of directors or the shareholders of the company. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S D I R E C T O R S ’ C O M M I T T E E 27 In accordance with clause 50 bis of Law 19,705, Enersis has AC TIVITIES O F THE D IREC TO RS’ COM M IT TEE a Directors’ Committee comprising three members who have the D U RI N G 20 04 powers and duties contemplated in that clause. On April 1, 2003, the board of the company appointed Pablo the Committee examined the unconsolidated and consolidated Yrarrázaval (related to the controller), Hernán Somerville (related financial statements of the company at December 31, 2003 with to the controller) and Ernesto Silva (un-related to the controller) as their notes, statements of income and material information, together members of the Directors’ Committee. The Directors’ Committee with the respective reports of the external auditors and inspectors At the first meeting of the year, held on January 28, 2004, in turn, at its meeting held on May 15, 2003, unanimously agreed of accounts. to appoint Pablo Yrarrázaval as chairman and Domingo Valdés as secretary. The Directors’ Committee at December 31, 2004 was The Directors’ Committee approved the text of the report that therefore conformed by: Chairman: Pablo Yrarrázaval Tax No: 5.710.967-K had to be presented to the company’s ordinary shareholders’ meeting concerning the activities of the Committee during 2003 and the expenses incurred by it, including its advisers, during that year. The Directors’ Committee also proposed to the board the Chairman of the Santiago Stock Exchange appointment of the independent external auditing firm Deloitte & Members: Ernesto Silva Tax No: 5.126.588-2 Commercial Engineer Pontificia Universidad Católica de Chile Hernán Somerville Tax No: 4.132.185-7 Lawyer Universidad de Chile Committee Secretary: Domingo Valdés Tax No: 6.973.465-0 Lawyer Universidad de Chile Touche for the year 2004 and the appointment of the firms Feller Rate Clasificadora de Riesgo Limitada, Fitch Chile Clasificadora de Riesgo Limitada and Clasificadora de Riesgo Humphreys Ltda. as the private domestic credit-rating agencies, and the firms Fitch ratings, Moody’s Investor Services and Standard & Poor’s International Ratings Services as the international credit-rating agencies, of Enersis for 2004. At its meeting on February 27, 2004, the Directors’ Committee analyzed in detail the statement of structured financial debt and trading current accounts of Enersis, as debtor or creditor, with Enersis group related companies at January 31, 2004. At its meeting on May 26, 2004, the Directors’ Committee, following an exhaustive analysis, agreed to propose to the Enersis board the signing of a purchase contract for the shares of the closely-held corporation Elesur S.A. that Endesa (Spain) and Endesa Internacional S.A. (direct and indirect parent companies of Enersis) hold . This purchase was completed, and implied that Elesur S.A. became a consolidated subsidiary of Enersis, which is the holder of 99.9989% of its share capital. In arriving at these conclusions, the Committee made a rigorous examination of its shareholders’ equity, N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O 28 financial statements and the general situation of Elesur S.A. in order making reports on the matters. The Committee examined quarterly to determine the implications and scope of the operation and decide the company’s unconsolidated and consolidated financial statements whether the purchase was convenient to the corporate interests and the remunerations systems and compensation plans for the of Enersis and met conditions of equity similar to those normally company’s principal managers and executives. prevailing in the markets. The Committee resolved to prepare a specific report on this transaction which was read and commented In conclusion, the Enersis Directors’ Committee has fully on at the following board meeting of Enersis. considered the matters set out in clause 50 bis of Law 18,046 during 2004 and has analyzed and contributed to the better development At its meeting on June 21, 2004, the Committee analyzed the of these operations. state of progress of the registration of the F4 documents (relating to the registration of a Yankee bond issue with the United States E XPENSES O F THE D IREC TO RS’ COM M IT TEE Securities and Exchange Commission (SEC) for US$ 350 million) and D U RI N G 20 04 Form 20-F (relating to the annual report in SEC format for the year 2003 and later up-dates). The Directors’ Committee made no use of the operating expenses approved by the ordinary shareholders’ meeting held The Directors’ Committee met 12 times during 2004 at which on March 26, 2004. The Committee had no need to contract any it examined and approved information relating to the operations professional advisers in carrying out its functions. referred to in clauses 44 and 89 of the Corporations Law 18,046 and O R G A N I Z A T I O N A L S T R U C T U R E CHAIRMAN Pablo Yrarrázaval CHIEF EXECUTIVE OFFICER Mario Valcarce COMMUNICATIONS OFFICER José Luis Domínguez HUMAN RESOURCES OFFICER Francisco Silva AUDITING OFFICER Francisco Herrera GENERAL COUNSEL Domingo Valdés REGIONAL CHIEF ACCOUNTING OFFICER REGIONAL CHIEF FINANCIAL OFFICER Fernando Isac Alfredo Ergas REGIONAL CHIEF PLANNING AND CONTROL OFFICER Macarena Lama D I R E C T O R S ’ C O M M I T T E E 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S E N E R S I S M A N A G E M E N T T E A M 29 Fernando Isac, Francisco Herrera, Domingo Valdés, Macarena Lama, Mario Valcarce, José Luis Domínguez, Alfredo Ergas and Francisco Silva. SEN I O R E XECU T IVES CHIEF EXECUTIVE OFFICER Mario Valcarce Tax No: 5,850,972-8 Commercial Engineer Universidad Católica de Valparaíso CHIEF REGIONAL FINANCE OFFICER Alfredo Ergas Tax No: 9,574,296-3 Commercial Engineer Universidad de Chile CHIEF REGIONAL PLANNING AND CONTROL OFFICER Macarena Lama Tax No: 21,495,901-1 Agronomist Escuela Técnica de Ingenieros Agrónomos de Madrid CHIEF REGIONAL ACCOUNTING OFFICER Fernando Isac Tax No: 14,733,649-7 Economist Universidad de Zaragoza LEGAL COUNSEL Domingo Valdés Tax No: 6,973,465-0 Lawyer Universidad de Chile CHIEF COMMUNICATIONS OFFICER José Luis Domínguez Tax No: 6,372,293-6 Civil Engineer Pontificia Universidad Católica de Chile CHIEF AUDIT OFFICER Francisco Herrera Tax No: 7,035,775-5 Civil Engineer Pontificia Universidad Católica de Chile CHIEF HUMAN RESOURCES AND ADMINSTRATION OFFICER Francisco Silva Tax No: 7,006,337-9 Public Administrator Universidad de Chile E N E R S I S M A N A G E M E N T T E A M 30 REMU N ER ATI O N O F SEN I O R E XECUTIVES M A N AG E M EN T O F SU BSI D I A RY CO M PA N I ES AN D M ANAGERS The total remuneration received by the senior executives and managers of Enersis amounted to ThCh$2,139 million at December 31, 2004. I NCENTIVE PL ANS Enersis has an annual bonus plan for its executives for compliance with objectives and the level of individual contribution to the company’s results. This plan includes a definition of a range of bonuses according to the hierarchical level of the executive. The bonuses eventually paid consist of a certain number of gross monthly salaries. SE VER ANCE PAYMENTS M AD E Severance payments made during 2004 amounted to Ch$ 50 million which were paid to managers leaving the company during the year. CHIEF EXECUTIVE OFFICER OF ENDESA CHILE: Héctor López Tax No: 48,062,402-5 Degree in Law and Economic Sciences ICADE de Madrid CHIEF EXECUTIVE OFFICER OF CHILECTRA: Rafael López Tax No: 14,709,119-2 Degree in Economic Sciences Universidad de Málaga CHIEF EXECUTIVE OFFICER OF EDESUR: José M, Hidalgo Tax No: 10,120,778-G Degree in Economic and Business Sciences Universidad de Santiago Compostela CHIEF EXECUTIVE OFFICER OF EDELNOR: Ignacio Blanco Tax No: 14,677,073-8 Degree in Economic and Business Sciences Universidad de Zaragoza CHIEF EXECUTIVE OFFICER OF CERJ (AMPLA): Marcelo Llévenes Tax No: 9,085,706-1 Commercial Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER OF COELCE: Cristián Fierro Tax No: 9,921,311-6 Civil Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER OF CODENSA: José Inostroza Tax No: 6,917,769-7 Civil Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER OF SYNAPSIS SOLUCIONES Y SERVICIOS IT LTDA,: Claudio Guzmán Tax No: 6,966,452-0 Information Technology Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER OF COMPAÑIA AMERICANA DE MULTISERVICIOS LTDA, (CAM): Pantaleón Calvo Tax No: 6,611,573-9 Civil Engineer Universidad de Chile CHIEF EXECUTIVE OFFICER OF INMOBILIARIA MANSO DE VELASCO LTDA,: Andrés Salas Tax No: 6,002,870-2 Civil Engineer Universidad de Chile 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 31 D ISTRI BUTI O N O F H UM AN RESO U RCES The personnel of Enersis are distributed as follows, including information on consolidated subsidiaries, at December 31, 2004: COMPANY SE NIO R MA NA GE RS & E XE CU TIV E S Enersis Endesa Chile (1) Chilectra (2) Edesur Edelnor Cerj (Ampla) Codensa Coelce Synapsis (3) CAM (4) Inmobiliaria Manso de Velasco Total 15 55 13 32 14 25 18 23 13 10 4 222 P ROF ESSIONA LS & TECHN ICIANS 106 1,369 479 1,624 336 1,010 795 545 629 1,157 11 8,061 EM PL OYEES & OTHE RS TOTAL 91 138 200 621 193 373 88 769 119 329 14 2,935 212 1,562 692 2,277 543 1,408 901 1,337 761 1,496 29 11,218 (1) Includes: Endesa Chile, Ingendesa, Pangue, Pehuenche, Celta, San Isidro, Central Costanera, El Chocón, Edegel, Emgesa, Betania, Cachoeira Dourada and Túnel el Melón. (2) Includes: Empresa Eléctrica de Colina and Luz Andes. (3) Includes: Synapsis Chile, Synapsis Argentina, Synapsis Colombia, Synapsis Brasil and Synapsis Perú. (4) Includes: CAM Chile, CAM Argentina, Cam Brasil, CAM Colombia and CAM Perú. Enersis provided numerous activities in 2004 for the continuous The working climate survey was made in October in all improvement in the quality of service offered by the company to companies of the Endesa (Spain) Group and the global results were its subsidiaries. Human Resources management also set itself published in late December. In the case of Latin America, the general the objective of consolidating an increase in satisfaction in the satisfaction indicator rose by 11 percentage points compared to the organization’s working climate. previous survey made in 2002. In the specific case of Enersis, the degree of satisfaction increased by 26%. Both definitions lead to the carrying out of a Management of Change Program based on the need to generate a positive attitude Another important landmark in the Group’s human capital of belonging and quality of service in everyone working for Enersis, performance was the development and implementation of a annually organizing workshops focused on identifying and resolving management system based on the SAP platform, which allows internal problems in every area of the organization. the integrated and effective management of human resources development processes and the unification and control of the Other activities carried out during the year and which processes for providing a global view. contributed to the compliance of the management’s objectives were the different training programs directed to workers and their families With respect to General Services, specifically in infrastructure, such as supervision, the development of technical and personal skills, we continued with the expansion, renovation and modernization of and induction programs. In all, these totaled 16,000 hours of training some of the installations in Endesa’s corporate building in Santiago, distributed as follows: 7% for managers, 43% for professionals and Chile, in order to centralize the Group’s strategic and tactical functions 50% for staff. in one place. Chilean subsidiaries were also given support in matters concerning transport, logistics and safety management. E N E R S I S M A N A G E M E N T T E A M 32 C U L T U R A L A C T I V I T I E S The contribution made by Enersis in Chile in terms of social D O NATI O N O F LI BR ARIES TO REMOTE responsibility is more than outstanding when taking into account COM MU N ITIES all the projects and contributions in different areas that this new business vision involves. This reinforcement campaign made by Enersis and El Mercurio newspaper began four years ago. To this date, around four thousand It requires the participation in initiatives that contribute books have been handed to public libraries in Chile, in areas where to the growth and improvement of the standard of living of local the population has difficult access to culture. In addition to having inhabitants. These have mainly been focused on cultural, social collaborated with the communities of Putre (1st Region), Tirúa (Eighth support and educational matters. Region) and Puerto Natales (Twelfth Region), Enersis supported education and social reintegration in Santiago’s Feminine Penitentiary The following are the most notable of Enersis’s initiatives in Center where 1,800 prisoners are held. social responsibility: ILLUM I NATI N G THE CH U RCHES I N TH E SO UTH O F TH E WO RLD EN ERGY I N FO R M ATI O N CENTER The Enersis Group has maintained the Energy Information Center for four years. This provides free entry to children from schools Since October 2001, Enersis with the Fundación Endesa and in the Metropolitan Region for them to become better aware of the Chilean Group companies (Endesa Chile and Chilectra), jointly energy–related concepts. with the Chilean Episcopal Conference, inaugurated a complete ornamental illumination systems for 25 temples belonging to the The center, which in 2004 received approximately 10,000 country’s historical heritage. school children, has games, interactive maps and a video explaining electricity generation and distribution activities. The company also In 2004, the benefited included the Parish Church of the complements this educational program in Santiago with work of Metropolitan Cathedral, the parishes of Putre and Parinacota, the a team of professionals created to provide talks on electricity to Padre Hurtado Sanctuary, Santo Domingo church in Santiago and students living in the areas close to the country’s power stations. the cathedrals of Osorno and Puerto Montt. The president of Fundación Endesa, Rodolfo Martín Villa, together with the chairmen of the three Enersis group companies in Chile, Pablo Yrarrázaval, Luis Rivera and Jorge Rosenblut, signed a new agreement with the Chilean Episcopal Conference extending the term of the agreement to the end of 2006 in order to complete pending projects and also attend new requests that may arise, whose maximum period for execution is three years. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 33 Parinacota Church. Antofagasta Cathedral. Puerto Montt Cathedral. CHRISTM AS E VENT FO R CH ILD REN AT SO CIAL The conferences were notable for the quality of their speakers, RISK for having promoted a debate on the political, social and economic scenarios and for having shown different points of view on Chile’s Fifty-five thousand children in social risk belonging to 181 regional development prospects. charitable institutions in the Metropolitan Region enjoyed a large- scale spectacle offered by the First Lady , Luisa Durán, in the National ESTR ATEG IA N E WSPAPER SEM I NARS Stadium, in which two thousand artists presented the “Deep Blue” story on stage. This event was sponsored by the company. Enersis sponsored weekly seminars organized by the Estrategia newspaper, a specialized journal that developed a plan of 48 business SP O NSO RSH IP O F REG I O NAL D E VELO PMENT seminars in which Enersis group employees actively participated. CO N FEREN CES Enersis, together with El Diario Financiero, covered Chile during as strategic planning, marketing, safety and risk prevention. The the period June to December with a “Cycle of regional development sessions, which are also open to the general public, last for two days conferences”, a program carried out for the sixth consecutive year. and are held in the Estrategia building. This training is given by recognized specialists in matters such In 2004, the habitants of Iquique, Calama, Antofagasta, Viña del Mar, Concepción, Temuco, Puerto Varas and Santiago were invited free of charge. C U L T U R A L A C T I V I T I E S 34 F I N A N C I A L A C T I V I T I E S CH ILE AN FI NANCES These operations carried out during 2004 have not only reduced the debt but also produced a substantial reduction in Liabilities were refinanced in 2004 through new syndicated borrowing interest rates and thus the financing expenses of the loans, the prepayment of bank debt and other minor operations, Enersis Group. including the prepayment of bank debt with funds generated by the companies’ operations. I NTERNATI O NAL FI NANCES In February, Endesa Chile signed a syndicated loan agreement It was established as an objective in early 2004 to increase with a group of banks led by BBVA, Citigroup, Caja Madrid and the levels of debt in local currency of each country in which the Santander Central Hispano Investments Inc., for an amount of US$250 Group operates. This would enable subsidiaries to have financial million, with an interest rate of Libor + 115 basis points and a term of commitments more in line with the currency of their revenues. 3 years 6 months. The proceeds, together with own funds, were used to prepay the previous syndicated loan of US$284 million. Consequently, a total of approximately US$600 million was In April, Enersis prepaid US$150 million of the Jumbo III loan Colombia, US$145 million in Brazil, US$79 million in Peru and US$41 issued on local markets of which US$333 million were issued in and signed an Amended and Restated Credit Agreement for US$350 million in Argentina. million and reduced the interest rate by 110 basis points. The highligths include the following transactions: In November, Enersis and Endesa Chile signed different revolving credit facilities for a total of US$600 million with a group Argentina: Edesur issued domestic bonds for a total of 120 of banks led by BBVA, Caja Madrid, Banco Santander Central Hispano million Argentine pesos, being the first electricity company to issue and Citigroup. This consisted of US$ 350 million for Enersis, with a 4- in pesos, for a term of 3 years, following the country’s economic year bullet repayment and an interest rate of Libor + 37.5 basis points. crisis. It was the company’s first issue in 7 years. The Libor margin is approximately 10.7% of the margin applicable to the Jumbo III loan of May 2003. For Endesa Chile, the facility consisted Brazil: Coelce issued debentures for a total of 89 million reals of US$250 million, with a 6-year bullet and an interest rate of Libor (BRL) at an 8-year term, being the longest term in local currency + 37.5 basis points. among the country’s electricity companies. Cerj (Ampla) also managed to issue debentures for a total of BRL 294 million at 3 In June, the debts of Compañia Americana de Multiservicios, years as the result of a successful financial strengthening plan that Inmobiliaria Manso de Velasco and Chilectra with BancoEstado, has reduced its cost of debt and extended its maturity. for a total of UF2,042,111, were renewed at a rate of TAB + 0%. All these debts were prepaid at the end of December as a result of the company’s excellent cash position. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 35 Colombia: Codensa has issued local bonds for a total of OTHER 500,000 million Colombian pesos (COP) at 5, 7 and 10-year terms. The proceeds were used to repay short-term debts. Betania issued COP The Enersis group during 2004 implemented the requirements 300,000 million at a 7-year term, and a second tranche is expected for complying with the Sarbanes Oxley Act (SOA). The Finance to be issued in 2006 for COP 100,000 million. Department also prepared the regulations and procedures project Peru: Edelnor placed domestic bonds for a total of 150 million financial management. The object is to regulate and standardize soles (PEN) at terms of 4, 5 and 10 years in various tranches. Edegel all important processes carried out in the group’s various financial also issued PEN 50 million at 4 years also in various tranches. These departments, to ensure their correct functioning. for extending the rigor of that law to all aspects of the company’s transactions form part of their debt refinancing policies. In addition, the Debt Control(Compliance ) and Capital Markets The Group’s interest rate hedging policy consists of Management strengthened the compliance responsibilities in 2004 maintaining cover for at least 70% of its most hedged fixed-rate to the most demanding rules coming out of the international financial debt. Throughout 2004, as a result of the reductions in floating- markets and, in particular, the SEC. It has also put into practice a rate debt, the company’s hedging levels have remained close to control system of restrictions and risk measurements related to the 90%. Every time a loan is repaid, the related derivative instruments group’s different loan agreements, thus contributing to the best are liquidated in order to avoid keeping instruments without any practices of international companies. underlying purpose. During 2004, a new exchange rate hedging policy was begun CRED IT R ATI N G based on cash flows. The objective is to maintain a balance between Enersis is an investment company whose assets belong to flows indexed to foreign currencies (US$) and the level of assets and electricity generating, distribution and transmission businesses, liabilities in that currency. plus investments in other related businesses. The Group is based in Chile and also operates in Argentina, Brazil, Colombia and Peru As a result of a study made of the indexation of cash flows, which provides it with an important and positive diversification and Enersis had to contract UF/US$ swaps for US$700 million in order a balanced corporate risk profile. Enersis’s cash flows follow a similar to leave the level of dollar liabilities adjusted to expected flows in diversified pattern. that currency. In the case of Endesa Chile, it was not necessary to redenominate its debt, according to the levels of its dollar assets and liabilities. The policy also establishes maximum levels of accounting mismatch for Enersis and Endesa Chile consolidated, so occasionally it is necessary to hedge short term. According to the actions taken during the year, the levels of Group mismatch have been maintained within the limits of the company’s policies. F I N A N C I A L A C T I V I T I E S 36 The precautionary measures have been duly valued by An exception is the Argentine situation where there is still no clear the Chilean and international credit-rating agencies. These firms resolution of the problems associated with the arbitrary freezing of recognize, among other things, that one of the Group’s strengths tariffs by the government in early 2002. is its suitable portfolio of investments and conservative financial structure. However, there are certain risks that cannot be controlled However, and as a result of the structural change made by the company and which affect its cash flows, making them less in Enersis’s financial and capital positions throughout 2003, the predictable and thus causing some uncertainty. perception of the Group risk improved notably. This is confirmed in the opinions issued in 2004 by the credit-rating agencies Fitch, Contributing to a positive risk evaluation relating to the Moody’s and Standard & Poor’s. investments outside Chile is the better perception of the new Brazilian regulatory model, the strong recovery in the economies, the The credit ratings of Enersis, internationally and in Chile, noting strengthening of local currencies and the recovery in energy demand. the positive prospects in two of them, as of March 2005, are as follows: KIND O F D EBT Local currency Foreign currency (Trend) INSTR UM E NT Shares Bonds F ITCH BBB- BBB- (Positive) F ITCH 1st Class Level 1 A+ STAN DA RD & P OOR’S MO OD Y’ S BBB- BBB- (Positive) FE LL ER R ATE 1st Class Level 1 A+ - Ba1 (Stable) HUMP HRE YS 1st Class Level 2 A- The Group’s corporate strategy for containing the risks inherent A concrete measure in the global context of the pro-active in an investment company in the electricity area, has been to manage management of Group risk is the Enersis Group Risk Committee the company’s assets prudently and responsibly, taking care to for identifying the most varied risks that can affect the company maintain an adequate level of liquidity. This policy has been carried and proposing the necessary containment measures promptly. This out last year by the strengthening of cash positions, reduction in debt, Committee has prepared a Group risks map and is operating with the improvements in service quality indicators, concentration on core most modern Business Risk Administration techniques. activities and constant monitoring of the economic and regulatory situation in each country where we operate. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S B U S I N E S S E S 37 H ISTO RIC E XPANSI O N Compañía Americana de Multiservicios Ltda. (CAM) Enersis is one of the largest private-sector electricity groups Its business is related to commercial and other operations in in Latin America in terms of consolidates assets and sales. This has networks for public utility companies, preferably in meter system been achieved through stable and balanced growth in its electricity services for utilities and as a purchasing agent, importer and exporter, generation and distribution businesses and their related activities. and also the seller and provider of materials for Enersis subsidiaries The distribution business is carried out through its subsidiary Chilectra, a company that distributes electricity in Chile’s Metropolitan I NTERNATI O NALIZ ATI O N Region, and has foreign investments. and other companies. Its investments in generation in Chile and abroad are in different privatizations in neighboring countries, thus developing mainly developed through the subsidiary Empresa Nacional de a significant presence in the electricity sectors of Argentina, Peru, Electricidad S. A. (Endesa Chile). Colombia and Brazil. Enersis began its international expansion in 1992 by taking part It also has businesses in areas that complement its activities In July that year, Distrilec Inversora S.A., a company in which through majority holdings in the following companies: Enersis is a shareholder, acquiered Empresa Distribuidora Sur S. A., Edesur, which distributes electricity in Buenos Aires, Argentina. Later, in December 1995, Enersis acquired an additional 39% of this Synapsis Soluciones y Servicios IT Ltda. company to give it control. Supplies services and equipment related to computing and Between July 1994 and December 1995, Enersis, through data processing. Inmobiliaria Manso de Velasco Ltda. Dedicated to real estate, through the integral development of real estate projects and the administration, rental, purchase and sale of the real estate of Enersis and subsidiaries in Chile. Inversiones Distrilima S.A., acquired 60% of Empresa de Distribución Eléctrica de Lima Norte S.A., Edelnor, in Peru. It also acquired Edechancay that same year. During 1996, Enersis entered for the first time into the Brazilian market, acquiring jointly with other partners, an important holding in Companhia de Eletricidade do Río de Janeiro, Cerj, which distributed electricity in the city of Río de Janeiro, Brazil. Today it trades under the name of Ampla. B U S I N E S S E S 38 In 1997, Enersis successfully took part, through a consortium, thermal plant in the state of Ceará in Brazil. The commercial operation in the capitalization and subsequent acquisition of control of also started of the second phase of the electrical interconnection Codensa S. A., Codensa, which distributes electricity in the city of between Argentina and Brazil, completing a transmission capacity Bogotá and in the department of Cundinamarca, Colombia. of 2,000 MW. Enersis also strengthened the financial position of In early 1998, Enersis returns to the Brazilian market, this time US$100 million and a capital increase of US$100 million, and US$1.6 in a consortium that is awarded control of Companhia Energética de million was invested in increasing its shareholding in Distrilima (the Ceará S.A., Coelce, that distributes electricity in north-east Brazil, in company that controls the distributor Edelnor) by 1.73%. Cerj (Ampla) by the conversion of subordinated bonds into capital by the state of Ceará. During 2003, Enersis made a capital increase for strengthening During 1999, Endesa (Spain) became the controller of Enersis. its capital base by more than US$2,104 million. It also refinanced Through a share purchase offering, in which it offered Ch$320 per US$4,018 million through different instruments like new syndicated share, the multinational acquired another 32% of Enersis which, loans, bonds issues on the local and foreign markets, prepayment added to the 32% that it bought in August 1997, gave it a final of the “Jumbo II” loan and other smaller operations. Finally, assets shareholding of 64%. The transaction, completed on April 7, 1999, were sold for US$757 million which included the Canutillar generating involved an investment of US$1,450 million. plant and the Río Maipo electricity distributor. On May 11, 1999, Enersis acquired a further 35% in Endesa Debt refinancing for US$2,100 million was achieved in 2004, Chile, in addition to the 25% it already held. This gave it practically through different instruments like new syndicated loans, the issue 60% of the generating company, making it the parent company and of bonds on the local and foreign markets, the prepayment of the consolidating itself among the leading private-sector generating “Jumbo III” loan and other smaller operations. In addition, the groups in Latin America. subsidiary Endesa Chile’s Ralco plant started its operations with a contribution of 690 MW of capacity. Important transactions were carried out in 2000 which can be summarized as follows: a capital increase of the company by RISK FAC TO RS US$520 million, and proceeds of US$1,400 million from the sale of the subsidiaries Transelec, Esval, Aguas Cordillera and divestments of Enersis is a holding company that counts on payments from its real estate, within the strategy framework of the Genesis Plan. subsidiary and associate companies to meet its financial obligations. An important part of the business of some of these subsidiaries Important investments were made throughout 2001: US$364 depends on hydrological conditions so potential drought conditions million to increase the company’s shareholding in Chilectra; US$150 could affect the company’s profits. Certain subsidiaries could also million in the acquisition of a 10% holding in Edesur, Argentina, which find themselves in a position of having to pay administrative fines was held by company employees; US$132 million for increasing its caused by droughts. holding in the Brazilian Cerj (Ampla); and US$23 million for increasing the shareholding of Enersis in Río Maipo by 15%. Regulatory changes by the governments of the different During 2002, construction continued in Chile of the Ralco operate could signify additional operating costs and impact their countries where the company’s subsidiary and associate companies hydroelectric plant, located in the 8th Region, and of the Fortaleza results. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 39 Enersis has debt subject to financial covenants and other The above factors enable Enersis to make investments that contractual restrictions. Also, exchange rate fluctuations could affect contribute to the profit growth with a proper weighting of the risks the company’s operating results adversely. deriving from the businesses in which it participates. Some Latin American economies where Enersis has investments I NVESTMENTS AN D D IVESTMENTS have been characterized by occasional drastic interventions by government authorities. For example, the Argentine authorities have Chile implemented a series of monetary and exchange control measures that have affected the operating results adversely and could continue Chilectra carried out a complete investment plan in 2004 to have a negative impact. involving US$59 million, mainly for meeting demand in its concession area and improving the quality of its customer service. With respect to the recent natural gas shortage in Argentina, this could have a negative impact on our generating plants in Chile On March 25, 2004, Chilectra, through its Agency, bought and Argentina, especially those that use Argentine natural gas. 760,255,861,477 shares in Cerj (Ampla) from Enersis Internacional for US$138,275,774, being the equivalent of a 17.95% shareholding As a result of this shortage, the local price of natural gas has in Cerj. risen; this could lead to a fall in our operating margins if we are incapable of passing on these higher costs to our customers. On September 6, 2004, the Ralco hydroelectric plant became D E VELO PMENT AN D GROW TH available to the Load Economic Dispatch Center (CDEC-SIC) and began to operate commercially with its first unit, followed by the second unit on September 22. On September 27, this plant on the Upper Bío The principal objective of Enersis is to maximize the economic Bío was inaugurated, enabling the injection into the electricity grid value of its equity through stable growth based on electricity of an average annual generation of 3,150 GWh, with a capacity of businesses that are strictly evaluated and managed. The achievement 690 MW, which signifies a contribution of 9% to the energy required of this objective is based on an investment strategy focused on on the Central Grid (SIC). increasing the value of the subsidiaries and associates and on the acquisition of new companies. Brazil A key factor in this strategy is making investments that significantly need Enersis’s experience, management skills and operating capacity. This need requires making investments in companies in which Enersis can have influence over management and operations, and with the power to approve or reject its investment projects. Another development factor consists of having an exceptional team of professionals who actively interact with the subsidiaries, advising them in the evaluation of their investment or financing projects and who are permanently open to new opportunities in the respective business areas in the Latin American market. The extraordinary shareholders’ meeting of Cerj (Ampla) held on January 8, 2004 unanimously approved a capital increase of 1,339,622,641,509 common shares in a proportion of R$0.53 per thousand shares, equivalent to R$710,000,000. On February 27, Enersis, through its Cayman Islands Agency, subscribed for 1,335,849,056,604 common shares corresponding to the rights of Endesa Spain, Chilectra, Electicidade de Portugal and Enersis, which was fully capitalized. Ampla was then able to reduce its debt by approximately US$240 million and Enersis increased its shareholding (direct and indirect) from 71.82% to 80.72%. B U S I N E S S E S 40 In January 2004, the Endesa Fortaleza thermal plant, in Chilectra card which gives access to a world of benefits apart from the state of Ceará in Brazil, entered into service, adding 319 MW electricity. of capacity to meet the electricity needs of north-east Brazilian market. In general terms, the trend foreseen for 2005 in the countries where the Group has investments is toward an increase in electricity PROSPEC TS FO R 20 05 demand in line with expected economic growth. Chile Brazil In electricity distribution, Chilectra expects a consolidation Cerj (Ampla) will continue with its efforts to reduce the level of the economic growth seen in 2004 when energy sales volumes of energy losses. It is expected that the company will connect in increased by 7.6%. The company will also continue to develop and 2005 more than 120,000 customers with high-technology electrical consolidate the sale of services and products related to sales of networks (DAT) which are anti-theft and make more than 87,000 electricity. normalizations. The DAT networks consist in replacing the existing electricity network with one that prevents direct connection by the Chilectra expects to consolidate its strategic plan “Chilectra customer. 21st Century”. It will continue in 2005 with the renewal of the corporate image projecting a message of proximity and modernity The company also expects to consolidate its internal to its customers. With respect to social responsibility, actions will be transformation plan. This strategic plan, in 2005, will seek to improve focused on the Fundación Chilectra Activa, an institution that will the working climate, personal development, improve and consolidate dedicate its efforts to the strengthening of education with emphasis the corporate image, reduce the level of losses and optimize its on matters related to electricity. functions operationally. Enersis expects that the authorities will continue creating Coelce will continue with its electrification program “Light conditions for private investment in electricity generation, for Everyone” whose investments are to expand the distribution transmission and distribution in order to maintain a stable national networks for the rural sector of the company’s concession zone. This energy matrix that guarantees electricity supplies to end customers program falls within the energy “universalization” plan being carried and national economic development. out by the government and the company, to supply energy to all The company will also remain alert to gas dependency of theft, mainly through the metering of more than 500 transformers Argentina as the principal input for electricity generation. The which involve 110,000 customers, in order to detect areas of heavy its customers. During 2005, Coelce will focus its programs on anti- government has nevertheless said that it foresees no electricity energy theft. restrictions for 2005. The distributor is trying to lead in the development of the city plan called “Plan Escalada Coelce” which seeks to improve the of Santiago and has proposed to all the civic authorities involved a service and attention to its customers, improve the labor climate plan for placing overhead wiring underground. Also, in its intent to with its workers and staff, reductions in the level of energy losses offer an integral service to its customers, it has created the Activa and improvement of the corporate image. In another area, the company will continue with its strategic 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 41 Argentina Peru The focus of attention will be the same as in 2004: the According to the current electricity legislation, the new renegotiation of tariffs and Edesur’s concession contract with the distribution tariffs for the next 4 years are due to be set, effective Argentine government. We remind you that the emergency law of November 1, 2005, for the distributor Edelnor. It is hoped that the January 2002 basically “peso-ified” and froze distribution tariffs authority will keep to purely technical factors in this process and on the basis of 1 peso = 1 US dollar. The law therefore has a serious thus lead to an adequate return on the investments the company effect on the company’s economic-financial equation which has been has carried out and create conditions so that Edelnor can continue dragged to a particularly critical state with respect to the provision to provide its customers with the best service. of the service and the accomplishment of obligations in the terms originally agreed. It is also expected that Edelnor will increase its sales in line with the country’s economic growth and raise its income from other With respect to investments, Edesur will make every effort energy-related services. to maintain the quality of service and respond to the growth of its concession area, taking into account the company’s financial situation Colombia in view of an adverse tariff scenario that does not guarantee an economic return. Codensa should be able to further optimize its capital structure. The competent authority has been asked to approve a capital It is hoped that the government will recompense the business reduction of COP$925,000 million which was previously approved according to the quality of service and profitability conditions set out in 2004 by the company’s bond-holders meeting. in the concession contract on which the investment was based. The Taltal, San Isidro and Gasatacama plants in Chile currently and trading of new services and products related to energy sales. The company is expected to intensify the commercialization depend on natural gas for their thermal generation and are parties to minimum volume purchase contracts with Argentine suppliers. PRO PERTIES AN D I NSU R ANCE On March 26, 2004, the Argentine state issued a resolution allowing for the partial suspension of fuel exports. This resolution permits The company owns some equipment and substations located the country’s president to temporarily suspend the long-term supply in Chile’s Metropolitan Region. It has insurance cover for risks such contracts with Argentine exporters. Should there be continuous as fire, lightning, explosions, malicious acts, earthquake, flooding, interruptions in natural gas supplies from Aergentina, the gas landslides, etc. could possibly be replaced by more expensive fuels like coal and/or diesel in order to maintain our current level of generation, and this TR AD EM ARKS would translate into higher generating costs and lower operating margins. The company has registered the trademarks Enersis, Chispazos, Dixsa, EnersisPLC and Internet at the speed of light and Enersis For its part, Endesa Chile has enabled its natural gas generators PLC. to continue to face the winter of 2005 with the equipment and permits required for generating with diesel oil in the event of gas supply restrictions. B U S I N E S S E S 42 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 F O R 2 0 0 4 The ordinary shareholders’ meeting held on March 26, 2004 ii) Investments in other subsidiaries such that the sum of the approved the Investment and Financing Policy which states: proportions of the fixed assets corresponding to the participation 1. I NVESTMENTS (a) Investment areas in each of these other subsidiaries does not exceed the proportion of the fixed assets corresponding to the participation in the electricity sector subsidiaries and Enersis. Enersis will invest in the following areas, as authorized in its (c) Participation in the control of the investment areas bylaws: • The investment in or formation of subsidiary or associate Enersis’s corporate purpose, the following shall be followed to all For the control of the investment areas and as established in companies whose business is similar, related or linked to energy possible extent: in any of its forms or nature or the supply of public utilities or have energy as a principal input. • The appointment of directors will be proposed in shareholders meetings of the subsidiary and associate companies that belong • Investments consisting of the acquisition, exploitation, to the Enersis holding, ensuing that these persons are preferably construction, rental, administration, commercialization directors or executives of the company or its subsidiaries. and disposal of all kinds of real estate, directly or through subsidiaries. • The investment, financing and commercial policies, together with accounting systems and criteria to be followed, will be proposed • Other investments in any kind of financial assets, debt titles and to the subsidiary companies. securities. b) Maximum investment limits be supervised. • The performance of the subsidiary and associate companies will The maximum investment limits of each area of investment • A constant control will be maintained over debt limits so that are the following: the investments or contributions made or planned do not imply anything unusual in the parameters defining the maximum i) Investments in its electricity sector subsidiaries, that are investment limits. necessary for these to be able to comply with their respective objectives. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 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 F O R 2 0 0 4 43 2.FI NANCI N G (a) Maximum indebtedness The maximum consolidated debt level of Enersis will be a total debt / equity plus minority interest ratio of 1.75 times. (b) Management powers for agreeing dividend restrictions with creditors. Dividend restrictions may only be agreed with creditors if such restrictions are previously approved in a shareholders’ meeting. (c) Management powers for agreeing the granting of security with creditors. The company’s management may agree to the granting of personal guarantees or tangible security, in accordance with its law and the bylaws. (d) Assets essential for the functioning of the company. The shares representing the contributions made to its subsidiary Chilectra constitute assets essential for the functioning of the company. 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 F O R 2 0 0 4 44 C O M P A R A T I V E F I N A N C I A L S T A T E M E N T S Millions of Ch$ (nominal) Total assets Total liabilities Minority interest Shareholders’ equity Current ratio Debt ratio (1) Sales Cost of sales Administrative and selling expenses Operating income Non-operating result Net income (loss) for the year 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 (1) Total liabilities / (shareholders’ equity plus minority interest) 1997 6,180,415 3,202,042 2,272,352 706,021 1.20 1.08 1,334,977 (857,444) (115,129) 362,404 (66,693) 103,516 2002 12,621,165 7,564,982 4,050,603 1,005,580 1998 7,442,034 4,017,266 2,640,805 783,963 1999 11,123,834 6,822,701 3,602,470 698,662 0.94 1.17 0.81 1.59 1,548,497 2,270,897 (942,288) (1,596,916) (129,857) 476,352 (184,815) 90,093 (244,742) 429,240 (400,246) (78,159) 2003 2004 10,732,747 10,507,525 4,835,073 3,349,282 2,548,392 1.02 0.82 4,822,966 3,125,006 2,559,553 1.49 0.85 2000 2001 11,058,463 12,388,155 7,254,045 3,954,923 1,179,186 6,444,707 3,513,155 1,100,600 0.62 1.40 0.71 1.41 0.56 1.50 2,589,957 2,970,273 2,485,873 2,352,333 2,708,925 (1,754,707) (1,966,322) (1,730,050) (1,651,732) (1,898,088) (314,736) 520,514 (159,532) 90,083 (271,383) 732,567 (483,496) 40,926 (223,179) 532,644 (796,530) (223,748) (169,503) 531,098 (449,911) 12,468 (176,635) 634,202 (368,653) 44,308 Millions of Ch$ (nominal) Total assets Total liabilities Minority interest Shareholders’ equity Current ratio Debt ratio (1) Sales Cost of sales Administrative and selling expenses Operating income Non-operating result Net income (loss) for the year (1) Total liabilities / (shareholders’ equity plus minority interest) 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S C O R P O R A T E S T R U C T U R E 45 C O R P O R A T E S T R U C T U R E 46 E N E R S I S G R O U P S T R U C T U R E At December 31, 2004 ����� ������ ������ ������ ����� ������ ������ ���� ���������� ������������� ��������� ������ ����� ����� ���������� ��������� ������ ������ ����������� ������� ������������� ������ ������� ������������ ������ ������� ��������� ������ ������ ������ ������ ���������������� ������������ ����� ����� ������ ��� ������������ ���������� ������ ������ ������ ����� ����� ���������� �������� ��������� ��������� ������ ������ ������ ������������������ ��������� ��� ������� ����� ����� ������� ������ ���������������� ��������� ����� ���������� ������ ���������� ������ ������ ����� ������ ������������ ������ ������ ������ 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S ������ �������� ������ ��� ������ ������ ������� ������������� ���������������� ����� ����� ��������� ���� ������ ���� ���� ���� ����������������� ����� ������� ����� 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������ (*) The subsidiary and associate companies of Endesa Chile are shown on page 48. ������ �������� ������ ��� ������ ������ ������� ������������� ���������������� ����� ����� ���� ���������� ������������� ��������� ���� ������ ���� ���� ���� ����������������� ������� ����� ����� ����� ��������� �������� ����� ������ ��� �������� ������ ������������������������ ������������� ������ ����� ��������� ��������� ������ ��� ��������� ������ ������������������� ������������ ������ ������ ��������� ������ ����� ��������� ����������� ��������������� ������ �������������� �������� ������ ������ �������� ������ ������ ������ ������ ������ ������� ��������� E N E R S I S G R O U P S T R U C T U R E 48 E N D E S A C H I L E G R O U P S T R U C T U R E At December 31, 2004 ���������� ��������� ����� ����� ������ ������ ��������� ������ ������� ����� ������� ������ ����� ������ ����� ������ ��������� ������ ������ ��������� ����� ������ ������� ������ ��������� ����� ������ ��������� �������� ������ ������������� ������ �������������� ������ ����� ������ ������ ����������� ������ �������������� ������ ������ ����� ��������� ��������� ����� ������ ������������ ���� ������ ������ ������ ������ ��������������� ������ ���������� ������� ������������� ������������� ���� �������� ���� ������ ������� ����� ������ ������ ������ ������ ���� ���� ��� ���� ������ ������ ����� ����������� ������� ����� ����� ���������������� ��������� 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S ������ ���������� ������ ������������� ������ ������ ����������� ������������������� ������ ����� ����� ������ ����� ������ ����� ������������������ ��������� ������������������ ������ ������������ ���������� ������ ����� ���������� ������ ����������� ������������ ����� ����� ������������ ���������� ������ ���� ��������������� ���������������� ���������������� ������ ������ ����� ������������������ ��������� ������ ���� ������� ��������� ����������� ����� ������������������ ����� ������ ������ ����� ���������� ������ E N D E S A C H I L E G R O U P S T R U C T U R E 49 ���������� ��������� ����� ����� ������ ������ ��������� ������ ������� ����� ������� ������ ����� ������ ����� ������ ��������� ������ ������ ��������� ����� ������ ������� ������ ��������� ����� ������ ��������� �������� ������ ������������� ������ �������������� ������ ����� ������ ������ ����������� ������ �������������� ������ ������ ����� ��������� ��������� ����� ������ ������������ ���� ������ ������ ������ ������ ���������� ������� ������������� ������������� ���� �������� ���� ������ ������� ����� ������ ������ ������ ����� ���������������� ��������� ������ ���� ���� ��� ���� ������ ������ ����� ����������� ������� ����� ������ ���������� ������ ������������� ������ ������ ����������� ������������������� ������ ����� ����� ������ ������������ ���������� ������ ����� ���������� ������ ����� ������ ����� ������������������ ��������� ������������������ ������ ��������������� ������ ����������� ������������ ����� ����� ������������ ���������� ������ ���� ��������������� ������ ���������������� ���������������� ������ ����� ������������������ ��������� ������ ���� ������� ��������� ����������� ����� ������ ������������������ ����� ������ ����� ���������� ������ E N D E S A C H I L E G R O U P S T R U C T U R E 50 Endesa Fortaleza plant, Brazil. P O L Í T I C A D E I N V E R S I O N E S Y F I N A N C I A M I E N T O D E 2 0 0 4 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 51 E L E C T R I C I T Y G E N E R A T I O N CH ILE 4, 47 7 MW ARGENTI NA 3,623 MW PERÚ 967 MW BR A ZIL 97 7 MW CO LOM BIA 2,609 MW N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O 52 E N D E S A C H I L E T H E CO M PA NY Name: Empresa Nacional de Electricidad S.A. E-mail comunicacion@endesa.cl Kind of company: Open corporation Tax No.: 91,081,000-6 Securities register No.: N°114 External auditors: Ernst & Young Serv. Prof. de Auditoría Ltda. Address: Santa Rosa N°76, Santiago, Chile Total number of shares: 8,201,754,580 Telephone No.: (56-2) 630 9000 Fax: (56-2) 635 4720 PO Box: 1392, Santiago Web Site: www.endesa.cl Subscribed and paid capital (ThCh$) 1,050,193,846 Holding of Enersis (direct and indirect) 60.0% Investments as proportion of Enersis assets: 26.7% Corporate objects (extract): Generation and supply of electricity, sale of consultancy and engineering services in Chile and abroad, and the construction and exploitation of infrastructure works. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 53 View of Ralco reservoir, located in Chile’s Bío Bío Region. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman Luis Rivera Vice Chairman Antonio Pareja Directors Jaime Bauzá Ignacio Blanco Enrique García Carlos Torres Andrés Regué Antonio Tuset Leonidas Vial Chief Executive Officer Héctor López Chief Communications Officer Renato Fernández Legal Counsel Carlos Martín Vergara Chief Financial and Administration Officer Alejandro González 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 Chief Generation Officer, Chile Claudio Iglesis E L E C T R I C I T Y G E N E R A T I O N 54 EN D ESA CH ILE Atacama Chile S.A. and GasAtacama Generación S.A., supplying various mining companies, and with sales on the spot market. The Enersis is the principal shareholder in Endesa Chile with a installed capacity of Celta S.A. on this grid is 182 MW, representing holding of 60.0%. The Group channels its investments in electricity 5% of the SING. Including GasAtacama Generación, in which Endesa generation in Latin America through Endesa Chile. Chile holds 50%, the installed capacity on the SING reaches 27%. The principal activities of Endesa Chile and its subsidiaries are In Chile, Endesa Chile generated 16,797 GWh and sold 18,462 related to the generation and commercialization of electricity, as well GWh during 2004. as the sale of consultancy and engineering services in all fields. At the consolidated level, Endesa Chile operates 46 plants S.A.E.S.P. and Emgesa, it operates a total of 2,609 MW of capacity, in five Latin American countries, with a total installed capacity of which represents 19% of the country’s installed capacity. These plants 12,333 MW. generated 11,881 GWh with sales of 15,148 GWh during 2004. In Colombia, through Central Hidroeléctrica de Betania In Argentina, through its subsidiaries Central Costanera S.A. In Peru, through Edegel, it operates a total of 967 MW of and Hidroeléctrica El Chocón S.A., it operates a total of 3,623 MW capacity, which represents 22% of the Peruvian grid. Total generation capacity which represents 15% of the total of the Argentine grid was 4,136 GWh with sales of 4,328 GWh during 2004. system. These plants generated 11,290 GWh in 2004 with sales of 11,604 GWh. Outstanding among the most important electricity projects developed during 2004 was the start-up of Ralco plant, a reservoir In Brazil, through Centrais Elétricas Cachoeira Dourada S.A., it hydroelectric plant located in the BíoBío River 600 km to the south operates a total of 658 MW of capacity which represents 1% of that of Santiago, with adduction tunnel and underground machine room country’s installed capacity, with annual generation of 3,262 GWh and an installed capacity of 690 MW. This is the most important and sales of 3,902 GWh. Also, through the interconnection line with hydroelectric plant in Chile, representing 8% of the installed capacity Argentina, operated by CIEN, 2,000 MW are added to that market on the SIC and the third largest hydroelectric plant of Endesa Chile. whose energy and power is supported by the Argentine subsidiary Central Costanera S.A. The Ralco reservoir has a total volume of 1,200 million cubic meters and covers an area of 3,467 hectares. Endesa Chile is the principal electricity generator in Chile and one of the country’s largest companies. It operates a total With a net fall of 175 meters, a turbineable flow of 452 m3/ s of 4,477 MW of capacity which represents 38% of the country’s and an average load factor of 52%, equivalent to 4,560 hours installed capacity. 76% of the installed capacity of the company and annually, it permits an annual average generation of 3,150 GWh, subsidiaries in Chile is hydroelectric and the rest thermal. Endesa equivalent to 8% of the installed capacity of the SIC. While it is true Chile participates in the Central Grid System (SIC), the largest in the that the designed capacity was originally 570 MW, later, following country which covers about 93% of the population. In has installed the efficiency achieved in the construction of the hydraulic works capacity of 4,295 MW on this grid, representing approximately 52% and taking into account the levels of over-opening of vanes obtained of the SIC. in September 2004, an environmental impact declaration was presented to the National Environmental Commission (Conama) The company also participates on the Northern Grid (SING) seeking authorization to operate the plant with a capacity of up to through its subsidiary Celta S.A. and indirectly through Gasoducto 690 MW; this was approved in December 6, 2004. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 55 Regarding the San Isidro II project, Chile’s 5th Region Corema two 500 Kv transmission lines covering a distance of about 500 km on August 16, 2004 gave its final approval of the environmental between Rincón in Argentina and the Santa Catarina substation in impact study for the project, a combined-cycle generating unit Brazil, and has a total capacity of 2,000 MW. which would operate with natural gas and be located in the district of Quillota, with a capacity of 370 MW. It expects to generate around Line I of Cien has contracts with Tractobel for 300 MW and 2,500 GWh annually. with Furnas for 700 MW. Line II has contracts with Copel for 400 MW, Cerj for 284 MW and Samarco for 25 MW. Unit 2 of the Isla plant was also modernized in 2004. This included a change in the control system, protections, and the Besides generation, Endesa Chile has other businesses, among voltage and velocity regulators. The change was made due to the which is Ingendesa which participates in large investment projects obsolescence of the equipment and to facilitate its future remote in Chile and Latin America, particularly in the areas of energy, control. infrastructure, mining, public utilities and telecommunications, through ser vices provided to both Group and un-related Work was also done to leave Unit 2 of the Taltal plant in companies. condition for its operation with diesel oil as an alternative fuel. With respect to the related company Cien, in which Endesa El Melón S.A. which opened to the public in September 1995. The Endesa Chile also manages Sociedad Concesionaria Túnel Chile holds 45% and Endesa Spain 55%, this permits the energy concession expires in May 2016. integration of Mercosur and makes possible the export and import of electricity between Argentina and Brazil in either direction. It has Endesa Chile employed 1,562 people at December 31, 2004 in all its companies in Latin America. INCOM E ST ATE M ENT MILL IONS OF CHILEAN P ESOS Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 1,032,662 (629,191) (34,445) 369,025 (165,109) 83,789 20 03 VAR IA TION 03 /04 % CHANGE 943,288 (564,208) (32,107) 346,974 (183,480) 80,084 89,374 (64,983) (2,338) 22,051 18,371 3,705 9.5% (11.5%) (7.3%) 6.4% 10.0% 4.6% E L E C T R I C I T Y G E N E R A T I O N 56 E N D E S A F O R T A L E Z A Command center at Endesa Fortaleza’s plant T H E CO M PA NY D I REC TO RS A N D M A N AG E M EN T Chairman Francisco Bugallo Director Marcelo Llévenes Director Juan León Herrera Chief Executive Officer Manuel Herrera Chief Financial Officer Raimundo Câmara Chief Technical Officer José Pires Medeiros Holding of Enersis (direct and indirect) 48.8% Investments as proportion of Enersis assets: 0.8% Corporate objects (extract): (i) Study, project, construct and explore electricity production, transmission, distribution and commercialization systems that are conceded, permitted or authorized under any title, and the exercise of other activities related to the provision of services of any kind related to the above activities. (ii) The acquisition, obtaining and exploration of any rights, concessions and privileges related to the above activities, and any related activity; and (iii) The participation in the capital of other companies as shareholder or partner, whatever their objects. Name CGTF -Central Geradora Termeléctrica Fortaleza S.A. Kind of company Closely-held foreign corporation Tax No.: 04,659,917/0001-53 Address: Rodovia 422, Km 1 s/nº, Complexo Industrial e Portuário de Pecém Caucaia – Ceará Postal Code: CEP 61600-000 Telephone No.: (55-85) 3464-4100 Fax: (55-85) 3464-4114 E-mail ilobo@endesabr.com.br External auditors: Ernst & Young Auditores Indepentes S/S Total number of shares: 151,935,779 Subscribed and paid capital (reals) 151,935,779 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 57 Top view of Endesa Fortaleza’s plant installations. Endesa Fortaleza is owned 51% by Endesa and 49% by Enersis. Fortaleza, other PPT (Thermal Electricity Priority Program) plants of This combined-cycle plant is located fifty kilometers from the capital the north-east and Petrobras, with the intervention of ONS and CCEE of Ceará state and started its commercial operations in December (ex MAE), whereby the original “lastro”was reestablished for the 2003. plants signing the agreement. This operating procedure was approved by Aneel through the note published on December 24, 2004. Gross energy generation in 2004 was 1,322 GWh and its sales of energy to Coelce reached 2,690 GWh. The plant uses natural gas Endesa Fortaleza has a firm gas purchase contract with as its fuel. CEGAS / Petrobras for 1,550,000 cubic meters a day under the PPT During the first half year, it operated for a continuous period of almost 100 days that enabled it to check the equipment, especially The installed capacity is 319 MW. during the guarantee period, which functioned as planned. conditions. On January 28, 2004, the National Electricity Agency (Aneel) installed generating capacity on the SIN (National Integrated Grid) The market share of Endesa Fortaleza represents 0.5% of the issued its Resolution No.40 which reduced the “lastro”of the plants and 3.2% of thermal plants. in the north-east based on a gas supply problem in the region. On November 18, 2004, an agreement was signed between Endesa The company employed 46 people at December 31, 2004. E L E C T R I C I T Y G E N E R A T I O N 58 Santiago, Chile. P O L Í T I C A D E I N V E R S I O N E S Y F I N A N C I A M I E N T O D E 2 0 0 4 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 59 E L E C T R I C I T Y D I S T R I B U T I O N CH ILE 1,371,109 CLIENTS ARGENTI NA 2,138,753 CLIENTS PERÚ 912,194 CLIENTS BR A ZIL 4, 4 48,993 CLIENTS CO LOM BIA 2,014,672 CLIENTS N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O 60 C O M P A R A T I V E O P E R A T I N G D A T A DISTRIBUTION CHILECTRA Energy sales (GWh) Energy losses Customers (thousands) Employees EDESUR Energy sales (GWh) Energy losses Customers (thousands) Employees EDELNOR Energy sales (GWh) Energy losses Customers (thousands) Employees CERJ (Ampla) Energy sales (GWh) Energy losses Customers (thousands) Employees COELCE Energy sales (GWh) Energy losses Customers (thousands) Employees CODENSA Energy sales (GWh) Energy losses Customers (thousands) Employees 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 6,676 9.0% 1,099 1,801 9,731 12.0% 2,050 3,940 2,756 15.7% 673 758 - - - - - - - - - - - - 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 - - - - - - - - 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 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 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 1,897 5,377 13.3% 1,508 1,834 8,217 19.5% 1,628 1,904 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 5,709 11.2% 1,652 1,958 8,502 14.4% 1,746 1,213 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 5,894 13.3% 1,796 1,592 8,776 10.5% 1,802 969 9,585 5.4% 1,289 722 12,909 9.9% 2,097 2,267 3,685 8.9% 867 557 6,739 22.7% 1,691 1,354 5,352 13.0% 1,917 1,464 8,673 11.8% 1,850 813 9,952 5.6% 1,319 720 12,138 11.6% 2,090 2,251 3,872 8.5% 871 565 7,145 22.6% 1,778 1,451 5,558 12.9% 2,009 1,401 9,015 10.3% 1,911 802 10,518 5.6% 1,341 745 12,656 11.8% 2,117 2,258 3,968 8.4% 892 554 7,276 23.6% 2,012 1,517 5,905 13.5% 2,109 1,375 9,254 10.2% 1,972 858 11,317 5.2% 1,371 692 13,322 11.8% 2,139 2,277 4,250 8.4% 912 543 7,628 22.8% 2,115 1,408 6,141 13.9% 2,334 1,337 9,656 9.7% 2,015 901 DISTRIBUTION CHILECTRA Energy sales (GWh) Energy losses Customers (thousands) Employees EDESUR Energy sales (GWh) Energy losses Customers (thousands) Employees EDELNOR Energy sales (GWh) Energy losses Customers (thousands) Employees CERJ (Ampla) Energy sales (GWh) Energy losses Customers (thousands) Employees COELCE Energy sales (GWh) Energy losses Customers (thousands) Employees CODENSA Energy sales (GWh) Energy losses Customers (thousands) Employees 6,676 9.0% 1,099 1,801 9,731 12.0% 2,050 3,940 2,756 15.7% 673 758 - - - - - - - - - - - - 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 - - - - - - - - 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 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 1,897 5,377 13.3% 1,508 1,834 8,217 19.5% 1,628 1,904 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 61 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 5,709 11.2% 1,652 1,958 8,502 14.4% 1,746 1,213 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 5,894 13.3% 1,796 1,592 8,776 10.5% 1,802 969 9,585 5.4% 1,289 722 12,909 9.9% 2,097 2,267 3,685 8.9% 867 557 6,739 22.7% 1,691 1,354 5,352 13.0% 1,917 1,464 8,673 11.8% 1,850 813 9,952 5.6% 1,319 720 12,138 11.6% 2,090 2,251 3,872 8.5% 871 565 7,145 22.6% 1,778 1,451 5,558 12.9% 2,009 1,401 9,015 10.3% 1,911 802 10,518 5.6% 1,341 745 12,656 11.8% 2,117 2,258 3,968 8.4% 892 554 7,276 23.6% 2,012 1,517 5,905 13.5% 2,109 1,375 9,254 10.2% 1,972 858 11,317 5.2% 1,371 692 13,322 11.8% 2,139 2,277 4,250 8.4% 912 543 7,628 22.8% 2,115 1,408 6,141 13.9% 2,334 1,337 9,656 9.7% 2,015 901 2003 figures have been adjusted under the criteria and methodologies applicables in 2004 C O M P A R A T I V E O P E R A T I N G D A T A 62 C H I L E C T R A Comercial office in Providencia T H E CO M PA NY Name Chilectra S.A. Kind of company Open corporation Tax No.: 96,524,320-8 Address: Santa Rosa N°76, Santiago, Chile Telephone No.: (56-2) 675 2000 Fax: (56-2) 675 2999 PO Box: 1557 Santiago Web Site: www.chilectra.cl E-mail comunicacion@chilectra.cl Securities Register No. N°0321 External auditors: KPMG Auditores Consultores Ltda. Total number of shares: 366,045,401 Holding of Enersis (direct and indirect) 292,064,473 Participación de Enersis (directa e indirecta) 98.2% Investments as proportion of Enersis assets: 12.8% Corporate objects (extract): Exploit in Chile and abroad the distribution and sale of hydroelectric, thermal or other kinds of electricity, and the distribution, transport and sale of fuel of any kind, supplying this energy or fuel to the greatest number of customers directly or through other companies. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 63 COS, Center Sistem Operation. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman Jorge Rosenblut Vice Chairman José M. Fernández Directors Alberto Martín Pedro Buttazzoni Hernán F. Errázuriz Marcelo Llévenes Álvaro Quiralte 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 Economic and Control Officer Juan Pablo Spoerer Chief Innovation & Human Resources Officer Cristián Herrera Chief Regulation Officer Guillermo Pérez Chief Operations & Market Performance Officer Juan Camilo Olavarría Chief Commercial Officer Alfredo Herrera Chief Networks Management Officer Enrique Fernández Chief Processes Management Officer Cristián Montero Chief Large Customers Officer Christian Mosqueira E L E C T R I C I T Y D I S T R I B U T I O N 64 CH ILEC TR A On the other hand, Chilectra bought energy from various generators in 2004 as follows: AES Gener (33.2%), Endesa Chile Chilectra is Chile’s largest electricity distributor in terms of (40.1%), Colbún (21.8%), Puyehue (0.8%) and others (4.1%). energy sales. Its concession area covers 33 municipalities in the Metropolitan Region, incorporating a total of 2,118 km2. This includes Tariffs concession areas held by Empresa Eléctrica Colina Ltda. and Luz Andes Ltda. It has 355 km of high-tension lines, 53 substations and 133 Distribution tariffs in Chile are set every four years. The last power transformers with a capacity of 5,830 MVA. tariff-setting was in November 2004, through Ministry of the Economy Decree 276 which set tariff formulas applicable from November 4, Enersis, its principal shareholder and controller, has a 2004 on supplies subject to price regulation made by electricity shareholding of 98.2%. distribution concession-holders. The new tariffs have translated into a reduction of 4.5% in Chilectra’s sales of energy and capacity. The following regulatory matters occurred during 2004: • The so-called “Short Law” came into effect in March, whose principal effect was to resolve the lack of investment in the transmission segment. It also covered issues like reduction in the limit for qualifying as a free customer (from 2.000 MW to 500 MW), the establishment of distribution tolls and the constitution of arbitration proceedings for resolving disputes, based on a panel of experts. • The panel of experts regulation was promulgated on July 7 and published on September 16 (Supreme Decree 181). • The Free Competition Defense Tribunal appointed members of the experts panel (July 12). • The setting of prices for related services, which begun in late 2003, was established in Supreme Decree 197, published on October 14, 2004. Energy Losses Physical Sales and Purchases reaching a level of 5.2%, compared to 5.6% in 2003. This makes Chilectra again set a new record in 2004 in terms of energy losses, Chilectra a world-category operator in controlling losses. Physical energy sales in 2004 were 11,317 GWh, representing a 7.6% increase over 2003. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 65 Customers This transformation and modernization effort was also translated into a renewal of the corporate image in order to With respect to its commercial activities, Chilectra‘s customers consolidate and transmit the new company philosophy to customers, at December 31 totaled 1,371,109, representing a 2.2% increase over employees and the community in general. the year before. Chilectra signed different contracts with customers during the launched its Activa Chilectra card on the market, offering customers year, the most important being: financing for the purchase of products offered by the company (electrical domestic appliances, video equipment, computers, air Within the Chilectra's 21st Century strategic plan, the company • Empresa de Transportes de Pasajeros Metro S.A.: contract for conditioning, etc.). supplying electricity for the next 10 years to the Mtropolitan Region’s most important means of transport which projects Regarding related products and services, the company consumption of 80 MW and 300 GWh in annual energy. presented a new range to the market. It has established an alliance • Sociedad Concesionaria Costanera Norte S.A.: contract for with Smartcom for the sale of mobile telephones at its commercial supplying electricity until 2033, with contemplated capacity offices, with much beter sales than expected (thirty thousand). It of 2,500 kW. Chilectra 21st Century also strengthened the sale of non-traditional products like heat- accumulating heaters, electric water heaters and air-conditioning equipment, and services like Chilectra Hogar, RDU (emergency repairs) and PAD (home service orders). It has also increased its insurance The company launched Chilectra 21st Century in 2004, a broking business to customers, currently offering the protected family, strategic plan reflecting the company’s vision, mission and values protected loan and obligatory automobile insurance policies. Sales of and seeking to increase operational efficiency and service vocation, these products and services reached ThCh$1,769,084 in 2004. and complemented by the adoption of a pro-active role in knowing and satisfying customer needs. Chilectra has organized various activities to get closer to the community, like the Chilectra Cup, Beat Drugs; Santiago’s This strategic plan has also focused on making Chilectra a International Book Fair; Search for Lost Children and Agreement corporate citizen committed to the development of the city of with FOAL and the creation of Fundación Chilectra Activa. Santiago, through the introduction of various initiatives centered on improving the living standards of its inhabitants in both the Chilectra employed 692 people at December 31, 2004, with a environmental and social areas. productivity of 1,981 customers per employee which is 10.1% higher INCOME STA TE ME NT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 483,006 (342,986) (42,408) 97,612 (27,903) 77,322 than in 2003. MILL IONS OF CHILEA N P ESO S 20 03 444,803 (314,129) (35,299) 95,375 (65,943) 52,756 VAR IA TION 03 /04 % CHANGE 38,203 (28,857) (7,109) 2,236 38,041 24,566 8.6% (9.2%) (20.1%) 2.3% 57.7% 46.6% E L E C T R I C I T Y D I S T R I B U T I O N 66 E D E S U R T H E CO M PA NY City of Buenos Aires, Argentina. Name: Empresa Distribuidora Sur S.A. E-mail emailservicio@edesur.com.ar Kind of company: Foreign corporation Tax No.: 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 External auditors: Deloitte & Co. S.R.L. Total number of shares: 898,585,028 Subscribed and paid capital (Argentine pesos) 898,585,028 Holding of Enersis (direct and indirect) 65.1% Investments as proportion of Enersis assets: 2.4% Corporate objects (extract): Distribution and sale of electricity and related business. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 67 Medium-tension line works in the streets of Buenos Aires. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman Rafael López Vice Chairman Rafael Fernández Directors Rafael Arias Daniel Maggi Alfredo Mac Laughlin Marcelo Silva Julio Valenzuela Gonzalo Vial Jorge Volpe Alternate Directors Pedro Aramburu Alan Arntsen Manuel Benites Jorge Gustavo Casagrande Santiago Daireaux Roberto Fagan Horacio Babino Mariano Grondona Pablo Lepiane Chief Executive Officer José María Hidalgo Chief Environment & Quality Officer José María Gottig Chief Communications Officer Daniel Martini Chief Internal Audit Officer Jorge Lukaszczuk Chief Legal Affairs Officer Álvaro Estivariz Chief Human Resources Officer Héctor Ruiz Chief Commercial Officer Sandro Rollan Chief Distribution Officer Daniel Colombo Chief Services Officer Daniel Alasia Chief Planning & Economic Control Officer Juan Garade Chief Administration & Finance Officer Juan Verbitsky E L E C T R I C I T Y D I S T R I B U T I O N 68 ED ESU R Edesur’s principal object is the distribution and sale of electricity in the southern zone of Buenos Aires, comprising two-thirds of the Federal Capital area and twelve districts of the province of Buenos Aires. Its concession area covers 3,309 km2. Enersis, its principal shareholder and controller, has a direct and indirect shareholding of 65.1%. Physical Sales The company supplied 13,322 GWh to its end customers in 2004, representing an increase of 5.3% over 2003, corresponding 22.8% to the residential sector, 32.7% to the commercial sector, 21.5% to the industrial sector and 23.0% to others. Tariffs All the efforts of Edesur, whether technical, commercial, administrative, fiscal and financial, were directed to alleviating, wherever possible, the serious effects of the emergency and the government measures to “peso-ify” and freeze distribution tariffs. Despite the conditions imposed, Edesur made every effort to make the minimum necessary investments for sustaining the service. The investment made by Edesur in 2004 amounted to over US$50 million. As a result of this and the investments made previously, the technical service quality indicators (number and duration of interruptions) did not show much change compared to 2003. Law 25,561 passed by congress and published in the Argentine official bulletin on January 7, 2002, declared a public emergency in social, economic, administrative, financial and exchange matters. This regulation amended the convertibility law and annulled the dollar or other foreign currency adjustment clauses and indexation clauses based on other countries’ price indices and any other indexation mechanism in contracts signed by the public administration, including public works and utilities. The resultant prices and tariffs of these clauses were established in pesos at an exchange rate of 1 peso = 1 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 69 US dollar. The passing of this “Economic Emergency” law was an act Customers that affected the situation of Edesur by producing serious damage to the company’s economic-financial equation and dragged this down Edesur provides electricity to 2,138,753 customers, 1% more to a particularly critical state for providing the service and meeting than the year before. Of these, 1,844,244 (86.2%) are residential, its contractual obligations in the terms originally agreed. 259,425 (12.1%) are commercial, 26,674 (1.2%) are industrial and 8,410 (0.4%) correspond to other customers. In order to repair this situation, the Argentine authority has decreed different processes and negotiation periods for public works Regarding unpaid bills, the maximum efforts have been made and utilities contracts. In conclusion, three years after the initial to reduce the amounts due through an effective policy of cutting approach and beyod the period set in regulations, the renegotiation supplies, supported by payment plans and facilities, in order to of contracts did not achieve satisfactory results nor showed significant reduce the amounts outstanding and continue with a systematic progress. Energy Losses improvement in the balance due compared to the billing amounts. As a result, the company’s recoveries were 97.8%. Despite the economy growth during 2004, the population “Edesur Empresas” business line, and the growth in the invoicing of living below poverty level and destitute homes continued to be services for the maintenance of street lighting in different districts Notable was the growth in large customer works through the significant, so theft of energy and unpaid bills largely concentrated of the Federal Capital. the attention of the commercial management. Thanks to this, Edesur managed to hold its loss ratio to 11.8% in 2004. In order to control the Employees losses, Edesur implemented programs that prevented the fraudulent meter tampering and illegal connections, and carried out traditional There were no significant changes in the number of people normalization projects, the cables raisings, etc. employed compared to 2003, reaching 2,277 people at December 31, 2004. The productivity rate was 939 customers per employee, similar to 2003. INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 208,982 (181,425) (27,811) (254) (8,808) (17,130) MILL IONS OF CHILEAN P ESOS 20 03 188,541 (165,195) (28,724) (5,378) (9,581) (27,779) VAR IA TION 03 /04 % CHANGE 20,441 (16,230) 913 5,125 773 10,649 10.8% (9.8%) 3.2% 95.3% 8.1% 38.3% E L E C T R I C I T Y D I S T R I B U T I O N 70 E D E L N O R T H E CO M PA NY Edelnor’s system dispatch center, Lima, Peru. Total number of shares: 985,380,267 Subscribed and paid capital (Peruvian soles) 985,380,267 Holding of Enersis (direct and indirect) 33.4% Corporate objects (extract): Distribution, transmission and generation of electricity. Name: Empresa de Distribución Eléctrica de Lima Norte S.A.A. Kind of company: Foreign open corporation Tax No.: 20,269,985,900 Address: Jr. Teniente Cesar López Rojas 201 Urb. Maranga, San Miguel, Lima, Perú 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 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 71 Equipment for electrical emergency services. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman Reynaldo Llosa Vice Chairman Ignacio Blanco Directors Fernando Bergasa Róger Espinosa Cristián Herrera Alfredo Llorente Guillermo Jesús Morales Ricardo Vega Chief Executive Officer Ignacio Blanco Chief Commercial Officer Carlos Solís Chief Organization & Human Resources Officer Rocío Pachas Chief Technical Officer Walter Sciutto Chief Administration & Control Officer Juan Yamamoto Chief Legal & Regulation Officer Luis Salem Chief Communications Officer José Otárola E L E C T R I C I T Y D I S T R I B U T I O N 72 ED ELN O R Physical Sales and Purchases Edelnor is the public utility concession-holding company for Physical energy sales in 2004 were 4,250 GWh, a 7.1% increase the northern part of Metropolitan Lima and the province of Callao, over 2003. Of the total sold, 36.4% was residential, 26.2% industrial, plus the provinces of Huaura, Huaral, Barranca and Oyón. It serves 17.2% commercial and 20.2% corresponded to other sectors. 52 districts on an exclusive basis and shares 5 other districts with the southern area distributor. Edelnor in 2004 bought energy mainly from Electroperú (50.7%), Edegel (24.8%), Eepsa (4.4%), Egenor (14.3%) and Cahua In the Metropolitan area, Edelnor’s concession zone mainly (5.7%). covers the industrial part of Lima and some populous city districts. The concession zone granted to Edelnor covers a total of 2,440 km2, of which 1,838 km2 correspond to northern Lima and Callao. Enersis has a direct and indirect shareholding of 33.4% in the company. Tariffs The Peruvian authority will set distribution tariffs on November 1, 2005. Tariffs are set by considering an efficient model distribution company and taking into account the following components: commercial costs related to the customer, standard losses of capacity and energy, standard investment costs, maintenance and operation of distribution per unit of capacity supplied. The tariff-setting process began in November 2004. Up to date, Edelnor has presented all the information within the time limits and in the form required by the authority. Energy Losses The energy loss indicator at the end of 2004 was 8.4%, the same as the year before, after having carried out a loss control plan by distribution substation under the priority set by the largest loss 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 73 per customer criteria. This method gives priority to control measures The “Edelnor Constructores” program was launched in and investment assignment according to the substations’ loss levels, December 2003, establishing a balance between our mission to in order to seek the highest productivity from the operation. A total improve the living standards of our customers and our commercial of 1,423 substations were therefore focused which concentrated a objective of promoting the installation and use of electrical appliances monthly loss of 11.7 GWh, reducing this to 8.7 GWh by the end of 2004, in the concession zone. The purpose is to establish alliances with i.e. by 25%. 473,000 inspections were also made and 24.3 GWh were construction, real estate and/or housing development promoter recovered under the concept of recovery of un-recorded consumption. companies to encourage investment in electrical appliances for the Finally, toward the last quarter of the year, normalization works and houses being built. Throughout 2004, Edelnor Constructores has network reforms were notably increased for the marginal areas of established alliances with 89 construction and real estate firms to the concession where there is mass theft that reaches levels of 70%, the benefit of 3,556 families, by equipping their homes with 4,419 a high level of delinquency and opposition to works and a relapse electrical appliances, mostly water heaters, and generating sales of rate of over 50%. US$426,966 in 2004. Edelnor invested more than US$20 million in 2004, mainly in “Seguro Más por un Dólar” is a product directed to customers the improvement and expansion of the electricity system and public in the social-economic segments C and D, consisting of a multiple lighting, and also in the implementation of corporate information benefits insurance policy covering replacement of stolen meters, systems. Customers fire, accidents, burial expenses, payment of electricity bills for one year, etc. At December, 2004, 115,780 customers were covered by this insurance; customer number 100,000 was contracted during February 2004. Electricity was supplied to 912,194 customers of which 93.4% were residential, 4.5% commercial, 0.1% industrial and 2.0% Employees corresponded to other customers. There were 543 employees at December 31, 2004, with a productivity of 1,680 customers per employee, 4.3% more than in 2003. INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 182,363 (137,720) (16,804) 27,838 (9,717) (523) MILL IONS OF CHILEAN P ESOS 20 03 VAR IA TION 03 /04 % CHANGE 180,345 (135,623) (17,522) 27,201 (3,149) 13,404 2,018 (2,097) 718 638 (6,568) (13,927) 1.1% (1.5%) 4.1% 2.3% (208.6%) (103.9%) E L E C T R I C I T Y D I S T R I B U T I O N 74 C E R J ( A M P L A ) T H E CO M PA NY Río de Janeiro, Brazil. Name: Cerj – Companhia de Eletricidade do Rio de Janeiro Kind of company: Foreign open corporation Tax No.: 33.050.071/0001-58 Address: Praça Leoni Ramos, N°01 – São Domingos, Niteroi, Rio de Janeiro, Brazil Telephone: (55-21) 2613 7000 Fax: (55-21) 2613 7153 Web Site: www.ampla.com E-mail arochinha@ampla.com External auditors: Deloitte Touche Tohmatsu Total number of shares: 4,235,186,511,194 Subscribed and paid capital (Reals) 1,625,424,306 Holding of Enersis (direct and indirect) 80.4% Investments as proportion of Enersis assets: 2.7% Corporate objects (extract): Study, plan, project, construct and explore electricity production, transformation, distribution and commercialization systems, and provide related services; make investigations into the energy sector and participate in other companies in the energy sector as a shareholder. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 75 Customer attention in Niteroi. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman António Melo Vice Chairman Gonzalo Carbó Directors Alfonso Arias Rafael López Carlos Silva Marcelo Silva Martín Serrano (Gerente de Finanzas Internacionales de Enersis) Francisco Pereira Marcelo Llévenes Alternate Directors José Alves Fernando Urbina Antonio José Sellare Joaquim Ferreira Chief Executive Officer Marcelo Llévenes Chief Regulations Officer José Alves Chief Commercial Officer Gonzalo Mardones Chief Human Resources Officer Eunice Rios Chief Loss Management Officer Claudio Rivera Chief Administration & Finance Officer Abel Alves Director Jurídico Ana Gonçalves Chief Technical Officer Maria L M Olano Chief Institutional Relations Officer Mário de Carvalho E L E C T R I C I T Y D I S T R I B U T I O N 76 CER J (A MPL A) Tariffs Cerj (Ampla) is an electricity distribution company that covers The ANEEL approved the tariff adjustment for Ampla on 73.3% of the state of Río de Janeiro, an area of 32,054 km2. The December 23, 2004. The effective increase in the 2005 tariff is 14.8% population of the zone is approximately 8 million, living in 66 over that for 2004, being the combined effect of the 2004 tariff municipalities, the main ones being Niteroi, Sao Gonçalo, Petrópolis, adjustment and the recalculation of the 2003 tariff revision. Campos and the coastal area of Los Lagos. Energy Losses Enersis has a direct and indirect shareholding of 80.4% of the company. Energy Sales Cerj managed to contain the natural increase in losses in 2004 to finally reduce them to 22.8% by the end of the year, 0.8% less than the year before. The reduction in the loss rate is the result of the application of innovative measures and a better understanding of the effectiveness of each action for a given kind of customer. In certain cases, it was necessary to design an anti-theft electrical network (DAT network) and, in others, actions for combating theft, improving collections and carrying out commercial activities were taken together with social actions (integral project). In other areas, it was just necessary to follow the traditional approach (normalization project). The investment in combating losses was BR$109.6 million (approximately US$41 million). The DAT networks consist of replacing the existing electricity network by one that prevents the customers direct connection. The DAT solution makes sense when the theft problem is concentrated Cerj supplied 7,628 GWh during the year of which 41.1% on direct connections to the network (clandestine and overdue corresponded to residential customers, 19.5% to commercial, 19.8% customers). 94,740 customers were connected with DAT technology to industrial and 19.6% to other customers. in 2004 with the following results: • Reduction in losses from 52.9% to 9.8% in the greatest losses areas. • • 41% increase in the billings of these customers. The collection rate increased by 3.9% compared to customers without DATR networks. • 26% reduction in the total debt of these customers. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 77 Customers company to show the transformation that took place in 2004 and the successes in improving its quality ratings and satisfying customers. Cerj had 2,115,403 customers of which 86.5% were residential, It also arises from the need to separate the company entirely from 6.4% commercial, 0.3% industrial and 6.8% corresponded to other its past. The new brand positions Ampla as a company “simple in sectors. essence and daring and innovative in attitude”. To attend new customers, the distribution network was Employees extended by 376 km in medium and low tension and 6,339 distribution transformers were installed. 14,775 customers were The company reduced the number of its employees by 7.2% attended in 1,786 “universalization” projects. These represented a to 1,408, with a productivity of 1,502 customers per employee, total investment of BR$80 million (approximately US$30 million) 13.3% better than in 2003. It should be pointed out that Ampla has in 2004. reduced its hierarchical levels from seven to four, and the number of departmental heads from 282 to 86, in order to make the company The commercial activity was characterized by the launching of and its processes less bureaucratic. a new brand, “Ampla”, which arose from the need to reposition the INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 354,638 (293,145) (14,600) 46,892 (75,373) (30,959) MILL IONS OF CHILEAN P ESOS 20 03 VAR IA TION 03 /04 % CHANGE 325,533 (289,209) (11,199) 25,125 (154,919) (101,243) 29,105 (3,936) (3,401) 21,767 79,546 70,284 8.9% (1.4%) (30.4%) 86.6% 51.3% 69.4% E L E C T R I C I T Y D I S T R I B U T I O N 78 Fortaleza, Brazil. C O E L C E T H E CO M PA NY Name: Companhia Energética do Ceará External auditors: Deloitte Touche Tohmatsu Total number of shares: 155,710,600,088 Subscribed and paid capital (Reals) 433,057,722 Holding of Enersis (direct and indirect) 31.2% Iorporate objects (extract): Explore electricity production, transmission, distribution and commercialization and related services in the state of Ceará Kind of company: Foreign open corporation Tax No.: 07.047.251/0001-70 Address: Av. Barão de Studart, 2917/83, Bairro Dionísio Torres, Fortaleza, Ceará, Brazil Telephone: (55-85) 3216 1100 Fax: (55-85) 3216 1410 Web Site: www.coelce.com.br E-mail: investor@coelce.com.br 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 79 Nightfall at Fortaleza beach in north-east Brazil. BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chief Executive Officer Cristián Fierro Chief Institutional Projects Officer José Nunes Chief Commercial Officer Luciano Galasso Chief Distribution Officer José Távora Chief Control and Strategic Planning Officer Abel Pérez Chief Organization & Human Resources Officer José Ferreira Chief Finance, Administration & Institutional Relations Officer Antonio Alves Chairman Marcelo Llévenes Vice Chairman Luciano Galasso Directors Eunice Rios Cristóbal Sánchez Antônio Cleber Uchoa José Alves Jorge Parente Carlos Silva Luis Gastão Bittencourt Fernando de Moura Gonzalo Vial Alternate Directors José Nunes Antonio Viana Antônio Basílio Pires e Priscila Sartori Antônio José Sellare Juarez Ferreira Antônio Gouvêa E L E C T R I C I T Y D I S T R I B U T I O N 80 CO ELCE Energy Sales and Purchases Coelce is the electricity distribution company of the state of Energy sales amounted to 6,141 GWh in 2004, i.e. 4.0% higher Ceará in north-east Brazil, with a concession zone of 148,825 km2. than in 2003. Of these, 29.7% were to residential customers, 18.1% The company serves a population of more than seven million. to commercial, 28.9% to industrial and 23.3% to other customers. Enersis has a direct and indirect shareholding of 31.2% of the in 2003, with Chesf (a hydroelectric generating company) supplying company. 55.42%, Endesa Fortaleza 36.29% and others 8.29%. Coelce bought a total of 7,068 GWh to meet demand, 3.9% more than Because of the gradual reduction in the amounts of energy and demand of the initial contracts with the supplier Chesf and in accordance with Decree 5,163/2004, Coelce was a buyer in the tender for pre-existing energy made on December 7, 2004 by the Ministry of Mines and Energy as part of the new energy model imposed by decree on July 30, 2004. 45,311 GWh were contracted for the period 2005-2014 at lower prices than those then prevailing in the market. Each new contract has a term of 8 years with supplies starting in 2005, 2006 and 2007. These contracts will partially replace the present contracts with CIEN that expire in December 2004, Chesf and the increases in demand during the period. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 81 Tariffs Coelce made investments of approximate US$50 million in As defined in the concession contract, the supply tariffs 2004, 27% more than in 2003. A total of 78,214 new customers were were adjusted on April 22 by 11.1%. This recognized new values connected to the low-tension electricity network and investments in the calculation of 2003 tariff revision, from 31.3% to 32.4%, were also made mainly in demand, supply quality and energy generating an increased income to be recognized in the 2004 to losses. 2006 adjustments. Energy Losses The census of public lighting was also up-dated which allowed us to increase the energy invoiced by 600 MW per month, an increase of 2.2% of total street lighting sales. Various actions were taken The year 2004 saw the continuation of the plan to control for the recovery and collection of unpaid bills, with positive results. losses that began in 2003, in which new actions were taken to This is confirmed by outstanding debt at December 2004 being paid discipline the market and control this important variable for the 52.2 days from billing which is lower than the 64.8 days recorded company. The traditional normalization projects, large customers in 2003, showing a recovery rate of 100.4% compared to 99.7% the and PIMT districts were carried out and achieved practically all the year before. targets set with satisfactory results. In this way, we began in 2004 the process of measuring the losses by regional frontier in order Continuing with its policy of a company committed to the to identify which are the areas of the state of Ceará that have the social-cultural development of the state of Ceará, Coelce continued highest loss ratings and, with these results, focus the application of with its project “Coelce en las escuelas” whose specific purpose is to resources on loss control projects. The losses in 2004 were 13.9% work in actions that tend to promote learning oriented to the use of compared to 13.5% in 2003. Customers electricity and the environment, and to contribute directly to poor communities throughout the state of Ceará, focused on children between 5 and 9 years old. This Coelce program in the schools already covers 5,173 children in 39 schools. Coelce, through three services (Coelce Domiciliario, Kit de Energía and Seguro Súper 3 +1), provides convenience and security Employees to the company’s 2,333,590 customers. The company is thus repositioning itself in the market, reinforcing the image of a provider The company employed 1,337 people at December 31, 2004, of solutions that complement the electricity distribution business. with a productivity of 1,746 customers per employee, representing an improvement of 13.8% compared to 2003. INCOME STA TE ME NT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 264,358 (229,674) (29,782) 4,902 (18,286) (14,040) MILL IONS OF CHILEA N P ESO S 20 03 VAR IA TION 03 /04 % CHANGE 212,572 (162,022) (30,362) 20,188 (26,386) (10,433) 51,786 (67,652) 580 (15,286) 8,100 (3,607) 24.4% (41.8%) 1.9% (75.7%) 30.7% (34.4%) E L E C T R I C I T Y D I S T R I B U T I O N 82 City of Santa Fe de Bogotá, Colombia. C O D E N S A T H E CO M PA NY Name: Codensa S.A. E.S.P. Kind of company: Foreign corporation Tax No.: 830,037,248-0 Total number of shares: 132,093,274 Subscribed and paid capital (Colombian pesos) 1,320,932,740,000 Holding of Enersis (direct and indirect) 21.7% Address Carrera 13 A N° 93-66, Bogotá, Colombia Investments as proportion of Enersis assets: 2.8% Corporate objects (extract): Distribution and commercialization of electricity and related services, the carrying out of works, designs and consultancy in electrical engineering, and the sale of products for the benefit of its customers. Telephone: (571) 601 6060 Fax: (571) 601 5917 Web Site: www.codensa.com.co E-mail: tservice@codensa.com.co External auditors: Deloitte Colombia Ltda. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 83 Codensa service operators BOA RD O F D I REC TO RS SEN I O R E XECU T IVES Chairman Andrés Regué Directors Cristóbal Sánchez José Inostroza Juan Spoerer Alfredo Ergas (Chief Regional Finance Officer of Enersis) José Vargas Pedro Rodríguez Edgar Ruiz Carlos Bello Alternate Directors David Acosta Germán Castro Luis Larumbe Roberto Ospina Omar Serrano Henry Navarro Héctor Zambrano Francisco Miranda Luis Rueda Chief Executive Officer José Inostroza Chief Commercial Officer David Acosta Chief Quality Officer Carlos Durán Chief Communications Officer Emilia Sarracino Chief Distribution Officer Germán Castro Chief Finance & Administration Officer Luis Larumbe Chief Legal Affairs Officer Alvaro Camacho Chief Planning & Control Officer Roberto Ospina Chief Human Resources Officer Carlos Alberto Niño Forero Chief Regulations Officer Omar Serrano Chief Auditing Officer Alba Urrea E L E C T R I C I T Y D I S T R I B U T I O N 84 CO D ENSA Tariffs Codensa distributes and sells energy in Bogotá and in 96 Codensa’s distribution system tariff was set for the period 2003- municipalities in the departments of Cundinamarca, Boyacá and 2007. The CREG accepted the request for revision of the distribution Tolima. The concession area covers 14,087 km2. tolls approved in 2003 presented by Codensa, by its Resolution Enersis has a direct and indirect shareholding of 21.7% in the the company’s electrical infrastructure and gave due recognition to CREG-065 of 2004, which corrected the urban-rural composition of company. ���������� ����� �� � ��� ��� �� � �� ���� ����� �� ��� �� �� �� � � �� ���� �� ��� �� � �������� �� ��� � �� ���� �� ��� � �� ��� ��� �� �� �� Energy Sales the underground infrastructure required by municipal regulations. This claim represents a higher annual income for Codensa of around US$11million over the next three years. On the other hand, CREG has now accumulated two years delay in the revision of the tariff formula and the publishing of the regulation governing the commercialization of energy and its remuneration. It is expected that the CREG will define these matters in the first half of 2005. Energy Losses The loss rate reduced from 10.2% in 2003 to 9.7% in 2004. Loss control management was focused on metering, seeking greater effectiveness in theft inspections. Work was also done in the normalization of district electricity networks through micropimt programs. A project was begun in 2004 for the digitalization of files of Sales grew by 4.3% during 2004 to 9,656 GWh of which 36.6% unrecorded consumption in the search for improvements in the debt was to residential customers, 13.7% to commercial, 5.7% to industrial forgiveness and write-off process for un-recorded consumption. and 44.0% to other customers. Tools were employed in 2004 for improving the operative management of loss control and the rate of energy loss detection. These included the implementation of signal protection systems in low-tension metering equipment, inspection equipment as a function of the economic activity, analysis of customer consumption and characteristics, the use of split nucleus transformers and ecometers especially in the preferential customer segment and of portable metering equipment directly connected to MT. �������������� � ����� � ���� ��� ����� ��� ���� � � ��� �� ���� ���� ��� ����� �� �� ��� 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 85 Customers Infrastructure investment and maintenance works were carried out in 2004 amounting to US$36 million in demand projects, supply Codensa’s share of the Colombian market in 2004 was 14.7%. quality, network safety, etc. The company serves 2,014,672 customers, being 2.2% more than in the previous year, consisting of 88.8% residential, 9.3% commercial, Codensa Services obtained its ISO 9,001, 2000 version, 1.7% industrial and 0.3% other customers. certification for the commercialization and construction of high- tension projects, thus placing the company in the leadership in the Using overdue payment control programs, the company provision of this kind of engineering services. Notable were the recorded an unpaid rate of 49.22% of its commercial portfolio, the Christmas lighting projects that achieved sales of around COP1,700 lowest level in recent years. million. A “Payment Culture” program was launched in October which New sales business generated revenues of COP61,874 million classifies customers according to their payment history over the past (some US$26 million) between infrastructure rentals, electrical works, twelve months in order to determine the non-suspension of those “Codensa Home” and “Codensa Services”. that have maintained a good payment record. We also developed a service through phone operator for the collection of invoices (“Gestión de Telecobranza”) in complementation of the portfolio Employees management via phone service. The personalized negotiation and agreements attention group dealt with customers having high debts Codensa employed a total of 901 people at December 31, 2004, and proposed repayment alternatives, thus improving recoveries and with a productivity of 2,236 customers per employee, 2.7% lower the company’s image. than in 2003. INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 365,513 (274,633) (6,431) 84,449 3,382 56,675 MILL IONS OF CHILEAN P ESOS 20 03 VAR IA TION 03 /04 % CHANGE 299,459 (254,222) (10,662) 34,574 6,502 18,471 66,054 (20,411) 4,231 49,874 (3,120) 38,204 22.1% (8.0%) 39.7% 144.3% (48.0%) 206.8% E L E C T R I C I T Y D I S T R I B U T I O N 86 P O L Í T I C A D E I N V E R S I O N E S Y F I N A N C I A M I E N T O D E 2 0 0 4 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S Workers participating in the cable instalation for an electric sub-sation. 87 O T H E R B U S I N E S S E S CH ILE SYNAPSIS / C A M / I N MO BILIARIA M ANSO D E VEL ASCO ARGENTI NA SYNAPSIS / C A M PERU SYNAPSIS / C A M BR A ZIL SYNAPSIS / C A M CO LOM BIA SYNAPSIS / C A M N O M B R E D E L C A P I T U L O N O M B R E D E L C A P I T U L O 88 Telephone service operators at Synapsis call center in Santiago. S Y N A P S I S T H E CO M PA NY Name: Synapsis Soluciones y Servicios IT LTDA. Kind of company: Limited partnership Tax No.: 96,529,420-1 External auditors: Deloitte & Touche Soc. de Auditores y Consultores Ltda. Subscribed and paid capital (ThCh$) 3,943,580 Holding of Enersis (direct and indirect) 100% Address: Catedral N° 1284, Piso 10, Santiago. Investments as proportion of Enersis assets: 0.3% Telephone: (56 2) 397 6600 Fax: (56 2) 397 6601 Web Site: www.synapsis-it.com E-mail: Synapsis@synapsis-it.com Corporate objects (extract): Provision and commercialization of services and equipment relating to computers, data processing, telecommunications systems and control systems for Chilean and foreign public utility and other companies REPRESEN TAT IVES A N D SEN I O R E XECU T IVES Representative Cristóbal Sánchez Alternates Eduardo López Claudio Rafael Guzmán Rodrigo Morelli Chief Executive Officer Claudio Rafael Guzmán Chief Administration & Finance Officer Rodrigo Morelli Chief Consultancy Officer Gustavo Pardo Chief Operations Officer Juan S. Seco Chief Plant Officer José M. Gil Chief Commercial Officer Sergio Sifon Chief Communications & Marketing Officer Rodolfo Nieto Chief Plant Officer, Chile Pedro Causa 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 89 SYNAPSIS Synapsis Soluciones y Servicios IT is a professional service company in information technologies. Synapsis is currently a Latin American leader in IT solutions for service companies and governments. Its head office is in Santiago, Chile and it also has offices in some of the most important cities in the region for ensuring a broad coverage: Buenos Aires, Argentina, Río de Janeiro and Fortaleza, Brazil, Bogotá, Colombia and Lima, Peru. �� �� ��� ���������� �� ���� ����� ��������� ����� �������� ������ ������ ������ ����� ������ The principal areas of action of Synapsis are consultancies In Brazil, notable was the continued concern for evolution in the search and implementation of technological solutions and innovation in business solutions for our customers, for which an supporting business processes; integration of services and products; investment of more than US$2 million was approved for a new data development, implementation and maintenance of information processing center in the city of Fortaleza. An association was also systems; outsourcing and infrastructure services, data center, made with the local telecommunications company, V2 Telecom de contact center, mass printing; and advice and implementation San Pablo, for successfully concluding important projects like tele- of telemetric, telecontrol, safety and localization of vehicles and metering for large and residential customers for utility companies telecommunications. through concentrators, follow-up and localization of vehicles, sending of short messages to the mobile telephones of the Brazilian electricity In recent years, Synapsis has enjoyed constant growth in distribution company customers, etc. Others projects of note are business from companies un-related to Enersis, these now accounting the automation of the Coelce substations, the implementation of for 33% of total revenues. a human resources system and economic financial system (SAP) in CAM Brazil. In Chile in 2004, more than 200 projects were begun, the most important being the automation of condenser banks for Chilectra; In Peru, a materials control system was designed for a new web site and credit card for Chilectra; implementation of the distributors for improving technical management in works involving electronic billing system for Chilectra and Smartcom, thus positioning contractors, with the consequent improvement in productivity; there Synapsis as one of the most important electronic billing operators in was innovation in the commercial attention of Edelnor with the Chile; implementation of control systems for Endesa’s hydroelectric implementation of a telephone-with-video channel for customers; plants; implementation of Ingendesa’s documental management a project was begun for the implementation of the Synergi@ system; call center services, TAG tele-sales for Autopista Central; links commercial system in Edelnor. With respect to improvements in project for the Ministry of Education; Heracles and human resources processes, a quality management system was introduced in the project for the Instituto de Normalización Previsional; credit and second half for the services provided to its customers; this obtained investments system for Codelco. its ISO 9,001:2000 certification. O T H E R B U S I N E S S E S 90 In Colombia, there was an increase in business with non-group This led to the consolidation in Argentina, among other companies which rose to 45% of revenues. Synapsis Colombia in activities, of the research and development of strategic products for 2004 was awarded the hosting of SAP applications and outsourcing the electricity business, technical systems and commercial systems. of systems and technology for Ecopetrol; the introduction of our The certification process for the CMMI software development began commercial solution in Compañía Eléctrica del Norte de Santander and levels 2 and 3 will be reached in 2005 in order to have a plant and Biwater Internacional; a contingency program for Codensa’s with the ability to compete in the international market. commercial system; renewal of Codensa’s commercial systems outsourcing contract; and the renewal of the SAP outsourcing contract Synapsis and its subsidiaries employ 761 highly-trained for the municipality of Medellín. In the first half of the year, Synapsis professionals for meeting the demands of our clients and offering a Colombia ratified its ISO 9,001:2000 certification. wide variety of services. The reorganization of the Latin American software plant was completed in 2004, in terms of the optimization and rationalization of operations which produced significant increases in efficiency. INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 45,447 (33,363) (6,084) 6,000 196 4,203 MILL IONS OF CHILEAN P ESOS 20 03 VAR IA TION 03 /04 % CHANGE 46,415 (31,089) (6,369) 8,956 (299) 6,092 (968) (2,274) 286 (2,956) 495 (1,889) (2.1%) (7.3%) 4.5% (33.0%) 165.4% (31.0%) 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 91 C A M T H E CO M PA NY Name: Compañía Americana de Multiservicios Ltda. Kind of company: Limited partnership Tax No.: 96,543,670-7 External auditors: Deloitte & Touche Soc. de Auditores y Consultores Ltda. Subscribed and paid capital (ThCh$)) 2,572,038 Holding of Enersis (direct and indirect) 100% Address: Bulnes N° 1238, Santiago. Investments as proportion of Enersis assets: 0.9% Telephone: (56 2) 389 7300 Fax (56 2) 389 7342 Web Site: www.camchile.cl E-mail cam@cam.enersis.cl Corporate objects (extract): Provision directly or through third parties, in Chile or abroad, of services in general real estate and property construction, import, export and distribution of products of all kinds. CAM's important participation in Santiago New Metro Stations AG EN TS A N D SEN I O R E XECU T IVES Joint agents Pantaleón Calvo Eduardo López Alternate joint agents Andreas Gebhardt Cristóbal Sánchez 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 Legal Representative, CAM Argentina Mauricio Naser O T H E R B U S I N E S S E S 92 C A M In connections and market discipline, contracts were awarded by the CGE distributor for the constriction of medium and low-tension CAM directs its activities to providing integral, mass and multi- junctions and by Compañía Eléctrica del Río Maipo for theft inspection service solutions, taking advantage of its experience in public utility services. services, mainly in operations related to metering, market discipline, distribution network works and the commercialization and logistics In metering services, the joint effort of CAM and Chilectra has of materials and equipment. In recent years, CAM has managed to enabled it to consolidate the provision of integral services through position itself strongly in electrical assembly, carrying out various numerous integrated cell metering installation projects for large substation and transmission line construction and assembly projects customers and the installation of metering concentrators in buildings for the electricity and mining sectors. in the distribution concession area. The head office in Chile and its subsidiaries in Argentina, Brazil, Finally, there was the contract with Compañía Eléctrica del Río Colombia and Peru have consolidated a regional presence, successfully Maipo for the maintenance of its park of meters comprising some expanding their customer portfolio in the electrical, sanitation, gas, 280,000 pieces of equipment. industrial, mining and telecommunications sectors. Its commitment to excellence in the quality of service has the company carried out a large number of works and projects for enabled CAM to be certified under the ISO standards in almost all customers in the industrial and mining sectors. It was also awarded its subsidiaries. This continuous process permits its head office to be an important turnkey project by the world’s largest mining company, in full process of being certified. BHP Billiton, for the construction of a 23 kV distribution system for In substation engineering, construction and assembly services, its Spence mine in Chile’s 2nd Region. During 2004, CAM was awarded contracts for US$161 million of which 69% came from business with third parties and 31% from In electrical assembly projects, CAM was awarded 2 contracts related companies. Of this latter percentage, US$9 million was by Concesionaria Costanera Norte for the assembly of equipment, obtained from joint contracts between CAM and Chilectra in projects transformers and cables in different sections of the highway and the relating to the transfer of networks and construction of multi-purpose hanging, ducting and connection of lighting and power cables within ducts for highway-concession companies. the tunnel in that section. In Chile, with respect to market discipline services for public Within the framework of expansion and modernization of utility companies, important contracts were signed in 2004 for 2-year the underground and land transportation system promoted by the terms with the sanitation companies Esval and Aguas Andinas, and government, CAM was recently awarded 2 emblematic projects a 3-year contract with Aguas del Valle. for Metro S.A. and EFE (Empresa de Ferrocarriles del Estado); in the first case, for lighting and power systems at 28 stations on its 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 93 Lines 4 and 4A, and, in the second, for signaling, electrification and In Argentina, notable was the participation in electrical, communications for the Santiago-Chillán section of the railway, sanitation and urban transport sector business, signing contracts for through a consortium formed by SICE-ENYSE, the latter linked to the metering equipment maintenance with the Buenos Aires distributors Spanish ACS-Dragados group. Edesur and Edelnor for around US$1 million. In sales of electrical materials, outstanding was the winning CAM Brazil began work on contracts with Coelce for loss control of bids with ANDE, Paraguay’s distribution company, for the sale of management, a 2-year contract amounting to US$6 million, and with cells, transformers and switches for US$2 million, a supply contract Ampla for metering and sealing logistics, safety material and control for the Santiago law courts center for Constructora OHL for close to of works materials under a 5-year contract worth US$9 million. US$1 million and materials supply contracts for the country’s largest distributors amounting to a total of US$2 million. CAM and its subsidiaries employ 1,496 people. Among notable business in the regional market, CAM Colombia stands out for entering the electricity, gas, water, hydrocarbons and �� �� ���� ����������� telecommunications markets and positioning itself as a leader in the provision of services for public utility companies. ���� ������ ��������� ����� The Peruvian subsidiary obtained important electrical construction and assembly contracts with third parties, including the construction of a transmission line and substation for supplying energy to Lima’s international airport for approximately US$2 million, and industrial low-tension assembly work for a significant number of companies in Lima, for a total of US$1 million. �������� ����� ������ ����� ����� ������ INCOM E ST ATE M ENT Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income 2 00 4 100,424 (84,077) (7,113) 9,233 749 8,612 MILL IONS OF CHILEAN P ESOS 20 03 VAR IA TION 03 /04 % CHANGE 94,011 (73,623) (6,305) 14,083 (295) 11,090 6,413 (10,454) (808) (4,850) 1,044 (2,478) 6.8% (14.2%) (12.8%) (34.4%) 354.0% (22.3%) O T H E R B U S I N E S S E S 94 ENEA, the large business park that Manso de Velasco is developing in Santiago. I N M O B I L I A R I A M A N S O D E V E L A S C O T H E CO M PA NY AG EN TS A N D SEN I O R E XECU T IVES Name: Inmobiliaria Manso de Velasco Limitada. External auditors: Deloitte & Touche Kind of company: Limited partnership Tax No.: 79,913,810-7 Address: Santa Rosa N° 76, Piso 9, Santiago- Chile. Telephone: (56-2) 3784700 Fax (56-2) 3784702 E-mail rch@mvelasco.enersis.cl Subscribed and paid capital (ThCh$) 25.916.800 Holding of Enersis (direct and indirect) 100% Investments as proportion of Enersis assets: 1.3% Corporate objects (extract): Acquisition, disposal, urbanization, sub-division, commercialization and exploitation of all kinds of real estate and investment company. Joint Agents Cristóbal Sánchez Andrés Salas Chief Executive Officer Andrés Salas Legal Counsel Alfonso Salgado Chief Project Development Officer Gustavo Cardemil Chief ENEA Project Officer Bernardo Küpfer 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 95 Manso de Velasco focuses its business on the development of completed new buildings like the residential projects Lomas de large real estate projects. It made important progress during 2004 Manutara and Santa Beatriz, the buildings of Tonelería Mundial, in the urbanization and sale of its main project for the ENEA industrial Fashion Transport, expansion of Safeway, new Copec and Esso gas sector and projects mainly destined for residential use (Sanctuario stations and the inauguration of the building of the concession-holder, del Valle and Puerto Pacífico). Vespucio Norte express. Total sales for the year reached Ch$6,229 The ENEA project consists of the development of a property million. of 1,000 hectares strategically located in western Santiago in its Also involved is Aguas Santiago Poniente S.A. which provides Pudahuel district, close to the city’s international airport. The project’s sanitation services related to the ENEA project. As a result of the notable highway location and access has been complemented with important project sales, the company had to expand its infrastructure the construction in 2004 of the link roads between Avenida Américo which currently serves more than 2,122 residential and industrial Vespucio, Avenida San Pablo and the private-concession highway customers and treats all the project effluents. Aguas Santiago Costanera Norte which began work in 2004 and should be opened Poniente is increasing its value significantly, by having the certainty during 2005. These works will give ENEA excellent connections of customers related to the ENEA project who require its services. with the cities strategic centers and thus permit the important development of this industrial park. The Santuario del Valle project, located in the La Dehesa district, has consolidated itself as one of the most important Phase 1 is currently being developed, corresponding to the urbanizations in Chile, focused on the sale of one-family residential industrial and business park. Works continued in 2004 for improving plots focused on the high-income segments of the population. During access to the Américo Vespucio axis which will permit the sale of part 2004, the sale of this important urban project was concluded and the of the land (Phase III-A) located on the west side of Américo Vespucio. architectural and sanitation service contracts terminated. The project has an innovative infrastructure including green areas in order to offer the best facilities and service areas for the complex In addition, there is the Tapihue project which consists of lands and its users. related to the Tapihue, Amancay (plot B) and La Petaca farms. These together comprise an area of 7,302 hectares in the district of Til-Til in ENEA continued to make important commercial progress. Large the province of Chacabuco, Metropolitan Region, and are classified as companies have installed themselves in the business park including ZDUC (Conditioned Urban Development Zone) as part of the Santiago Dibusa, Motorman, Gasei Chile S.A., Empresa Constructora Belfi, Metropolitan Regulator Plan. Work is currently being carried out on expansion of Carlos Herrera and the continuation of housing projects the regularization of the water rights and other requirements which like Geosal and the expansion of the Santa Beatriz complex phases will add value to the project. III and IV. Some companies already forming part of the project have O T H E R B U S I N E S S E S 96 96 Lastly, there is the Meseta Puerto Pacífico project on land Manso de Velasco manages a total of 34,160 m2 of office of more than 35,000m2 located in Viña del Mar which enjoys a and commercial buildings which are mainly rented to related privileged position (corner of 15 Norte and Nueva Libertad streets) companies. close to important commercial centers and just 5 minutes from Viña del Mar's downton. The global sales of Inmobiliaria Manso de Velasco in 2004 During 2004, the sale of sub-plots continued, there remaining were Ch$10,354 million. available 44% of the project for sale. To date, 5 real-estate projects The company employed 29 people at December 31, 2004, have been developed by third parties on land already sold, of which comprising 4 executives, 11 professionals and technicians and 14 3 are finished. staff and others. INCOM E ST A TEME N T Sales Cost of sales Administrative & selling expenses Operating income Non-operating result Net income MILL IONS OF CHILEA N P ESO S 2 00 4 20 03 VAR IA TION 03 /04 % CHANGE 10,354 (8,432) (2,008) (85) 3,776 3,006 11,616 (10,763) (1,733) (880) (2,127) 1,339 (1,262) 2,331 (275) 795 5,903 1,667 (10.9%) 21.7% (15.9%) 90.3% 277.5% 124.5% 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S D E C L A R A T I O N O F R E S P O N S I B I L I T Y 97 The directors of Enersis and the chief executive officer, signatories to this declaration, swear to the truth of all the information contained in this annual report, in accordance with general rule No.30 of the Supreintendency of Securities and insurance. CHAIRMAN Pablo Yrarrázaval Valdés RUT: 5.710.967-K VICE CHAIRMAN Rafael Miranda Robredo RUT: 48.070.966-7 DIRECTOR Ernesto Silva Bafalluy RUT: 5.126.588-2 DIRECTOR Hernán Somerville Senn RUT: 4.132.185-7 DIRECTOR Alfonso Arias Cañete RUT: 48.087.945-7 DIRECTOR Eugenio Tironi Barrios RUT: 5.715.860-3 DIRECTOR José Luis Palomo Álvares RUT: 48.085.073-4 CHIEF EXECUTIVE OFFICER Mario Valcarce Durán RUT: 5.850.972-8 D E C L A R A T I O N O F R E S P O N S I B I L I T Y 98 O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S D ISTRILEC I NVERSO R A Name Distrilec Inversora S.A. Kind of company Foreign closely-held corporation Address: San José N° 140 (C1076AAD) Buenos Aires, Argentina Telephone: (54-11) 4370 3700 Fax:: (54-11) 4381 0708 External auditors: Deloitte & Co. Sr. L. Subscribed and paid capital (Argentine pesos) 497,612,021,000 Holding of Enersis (direct and indirect) 50.7% Investments as proportion of Enersis assets: 1.71% Corporate objects (extract): Exclusively the investment in companies whose main business is electricity distribution or that participate directly or indirectly in companies in that business through the making of all kinds of financial and investment activities, the purchase and sale of bonds, shares, negotiable instruments and the granting of loans and the placement of cash on banks deposits of any kind. BOARD OF DIRECTORS Chairman Rafael Juan Fernández Vice Chairman Rafael López Directors Alan Arntsen Mariano Florencio Grondona Marcelo Silva Gonzalo Vial Horacio Ricardo Babino Jorge Gustavo Casagrande Adelson Antonio da Silva Luis Miguel Sas Alternate Directors Luis Diego Barry Santiago Daireaux Manuel María Benites Roberto José Fagan Pedro Eugenio Aramburu Rigoberto Mejía Aravena Nicolás Carusoni Martin Aldasoro Daniel Jorge Maggi Jorge Roberto Barros Chief Executive Officer José María Hidalgo EN ERSIS I NTERNACI O NAL Name Enersis Internacional Kind of company: Foreign corporation Address: P.O. Box 309, Ugland House, South Church St, Grand Cayman, Cayman Islands Telephone: (345) 949 8066 Fax:: (345) 949 8080 External auditors: Deloitte & Touche Subscribed and paid capital (ThCh$) 211,895,795 Holding of Enersis (direct and indirect) 100% Investments as proportion of Enersis assets 8.2% Corporate objects (extract): Any legal activity relating to energy or fuel. BOARD OF DIRECTORS Chairman Mario Valcarce (Chief Executive Officer of Enersis) Director Alfredo Ergas (Chief Regional Finance Officer of Enersis) I NVESTLUZ Name Investluz S.A. Kind of company: Foreign corporation Tax No.: 03,032,652/0001-04 Address: Av. Barão de Studart N° 2917, Bairro Dionísio Torres Fortaleza, Ceará, Brasil. Telephone: (55-85) 3216 1273 Fax:: (55-85) 3216 1422 External auditors: Deloitte & Touche Total number of shares: 100,461,895,427 Subscribed and paid capital (reals) 954,618,954,270 Holding of Enersis (direct and indirect) 55.5% Investments as proportion of Enersis assets: 1.16% Corporate objects (extract): Participate in the capital of Companhia Enegetica do Ceará and other companies in Brazil and abroad. BOARD OF DIRECTORS The company has no board but is managed by a committee of managers chaired by Cristián Fierro Montes. Members of the managers’ committee: Antonio Osvaldo Teixeira Silvia Pereira Cunha José Renato Ferreira Barreto Luciano Alberto Galasso Abel Pérez Manuel Fernando das Neves 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 99 I NVERSI O N ES D ISTRILIM A EN D ESA M ARKE T PL ACE Name Inversiones Distrilima S.A. Name Endesa Market Place en Liquidación S.A. Kind of company: Foreign corporation Tax No.: 20217264783 Address: Jr. Teniente César López Rojas No201, Maranga, San Miguel, Lima, Perú Telephone: (511) 5611604 Fax:: (511) 4523007 PO Box: 32, Lima External auditors: Gris y Hernández y Asociados S.A.C. – Deloitte & Touche Total number of shares: 487 331 272 acciones Subscribed and paid capital (million of Peruvian soles) 487,331,272 Holding of Enersis (direct and indirect) 55.7 % Investments as proportion of Enersis assets: 0.5% Corporate objects (extract): Make investments in general especially those related to electricity distribution and generation. BOARD OF DIRECTORS Vice Chairman Ignacio Blanco Vicepresidente Reynaldo Llosa Alternate Directors Alfredo Llorente Cristian Herrera Fernando Bergasa Directors Walter Néstor Sciutto Mario Enrique Albornoz Patricia Mascaró Klaus Winkler Fernando Fort Marie Chief Executive Officer Ignacio Blanco Kind of company: Foreign corporation Address: Rivera de Loira, 60 CEP 28042 Telephone: (34-91) 213 1000 Fax:: (34-91) 213 4199 External auditors: Deloitte & Touche Subscribed and paid capital (ThCh$) 5,024,427 Holding of Enersis (direct and indirect) 15.0% Corporate objects (extract): B2B and new technologies. Liquidator Jean Paul Zalaquett Chief Executive Officer Jean Paul Zalaquett ELESU R Name Elesur S.A. Kind of company: Closely-held corporation Address: Santa Rosa 76 Piso 2, Santiago, Chile Telephone: (56-2) 353 4680 Fax:: (56-2) 378 4794 External auditors: Deloitte & Touche Subscribed and paid capital (ThCh$) 1,044,080,889 Holding of Enersis 100% Investments as proportion of Enersis assets: 1.6% Corporate objects (extract): Make investments in all kinds of assets including trade paper, shares, corporate rights and participations in companies. BOARD OF DIRECTORS Chairman Mario Valcarce (Chief Executive Officer of Enersis) Directors Alfredo Ergas (Chief Regional Finance Officer of Enersis) Domingo Valdés (Legal Counsel of Enersis) Chief Executive Officer Fernando Isac (Chief Regional Accounting Officer of Enersis) LUZ D E RÍO Name Luz de Río Limitada Kind of company: Limited partnership Tax No.: 01,171,325/0001-08 Address: Praça Leoni Ramos, nº 01, bloco 1, Planta 7 (parte) Niterói, Rio de Janeiro Telephone: (55-21) 2613-7032 Fax:: (55-21) 2613-7122 Postal code: 24,210-205 E-mail: lbettencourt@ampla.com Securities Register No.: not applicable External auditors: Deloitte Touche Tohmatsu Total number of partnership shares: 755,000 O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 100 Subscribed and paid capital (reals) 755,000 Investments as proportion of Enersis assets: 99.4% Corporate objects (extract): Activities related to the electricity sector, especially its import, transmission, production, distribution, commercialization and exploration, and participations in other companies in the electricity sector. CHILECTR A INTERNACIONAL Name: Chilectra Internacional Kind of company: Foreign corporation Address: P.O. Box 309, Ugland House, South Church St., Grand Cayman, Cayman Islands, British West Indies. BOARD OF DIRECTORS Chairman Marcelo Llévenes Chief Financial Officer Abel Alves Rochinha Chief Institutional Relations Officer Eugenio Carbañes Chief Legal Affairs Officer Ana Cláudia Gonçalves COMPAÑ ÍA PERUANA D E ELEC TRICI DAD Name Compañía Peruana de Electricidad S.A.C. Kind of company: Closely-held corporation Tax No.: 20,220,203,663 Address: Jr. Teniente César López Rojas 201, Maranga, San Miguel, Lima, Perú Telephone: (0511) 5611604 Fax:: (0511) 4523007 PO Box: 32, Lima External auditors: Gris y Hernández y Asociados S.AC. – Deloitte & Touche. Total number of shares: 121 833 559 acciones Subscribed and paid capital (million of Peruvian soles) 121,833,559 Holding of Enersis (direct and indirect) 51.0% Corporate objects (extract): Investments in general especially related to electricity distribution and generation. The company has no board of directors. Chief Executive Officer Ignacio Blanco Corporate objects (extract): Exploitation, production, transport, distribution and trading of energy and electrical equipment, and the making of electrical installations. Chief Executive Officer Christian Mosqueira EMPRESA ELÉC TRIC A DE CO LINA Name Empresa Eléctrica de Colina Limitada Kind of company: Limited partnership Address: Chacabuco N°31, Colina, Santiago, Chile Telephone: (562) 844-3130 Fax: (562) 844-3111 External auditors: KPMG Auditores Consultores Ltda. Telephone: (345) 949-8066 Fax:: (345) 949-8080 External auditors: KPMG Auditores Consultores Ltda. Authorized capital (US dollars) 112,022,703 Paid Capital (US dollars) 112,022,703 Holding of Enersis (direct and indirect) 98.2% Corporate objects (extract): Activities related to projects and investments of the parent company. Paid Capital (ThCh$) 64,672 Chairman Mario Valcarce (Chief Executive Officer of Enersis) Director Alfredo Ergas (Chief Financial Officer of Enersis) LUZ AN DES Name Luz Andes Limitada Kind of company: Limited partnership Address: Santa Rosa 76 Piso 5, Santiago, Chile Telephone: (562) 634-6310 Fax:: (562) 634-6370 External auditors: KPMG Auditores Consultores Ltda. Paid Capital (ThCh$) 1,000 Holding of Enersis (direct and indirect) 98.2% Holding of Enersis (direct and indirect) 98.2% Corporate objects (extract): Exploitation, production, transport, distribution and trading of energy and electrical equipment, and the making of electrical installations. Chief Executive Officer Leonel Martínez CH ILEC TR A I NVERSU D Name Chilectra Inversud S.A. Kind of company: Closely-held corporation Address: Santa Rosa 76, piso 8°, Santiago Telephone: 675-2000 Fax: 675-2000 External auditors: KPMG Auditores Consultores Ltda. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 101 SYNAPSIS PERÚ Name Synapsis del Perú S.A. Kind of company: Corporation Tax No.: 20466590747 Address: Jr. Teniente César López Rojas 201, Piso 10, Maranga, San Miguel, Lima, Perú Telephone: (0511) 5611604 Fax: (0511) 4523007 Securities Register No.: Not applicable External auditors: Gris y Hernández y Asociados S.AC. – Deloitte & Touche. Total number of shares: 609,200 Subscribed and Paid Capital (Peruvian soles) 609,200 Holding of Enersis (direct and indirect) 100% Corporate objects (extract): Provide services related to computing, data processing and other IT services in telecommunications and control, and of training in activities related to the above. The corporation has no board of directors Chief Executive Officer Patricia Mascaró SYNAPSIS ARGENTI NA Name Synapsis Argentina Kind of company: Limited partnership RUT (CUIT) 30-65753556-3 Address: Alicia Moreau de Justo 1750 3 “C”, Capital Federal Telephone: 0054 11 4021 8300 Fax: 0054 11 4021 8300 Paid Capital (US$) 230,120,000 Holding of Enersis (direct and indirect) 98.2% Corporate objects (extract): Exploitation abroad and the distribution and sale of electricity, and making of investments in foreign companies and all kinds of investments in any commercial instrument including bonds, debentures, credits, negotiable securities or other financial or commercial documents. Chief Executive Officer Álvaro Pérez Manager Administration & Human Resources Edgar Enrique Martínez Commercial Manager Germán Sánchez Consultancy Manager Leonardo Fabio Escobar Plant Manager Ana Patricia Delgado Operations Manager Eduardo Ruiz BOARD OF DIRECTORS Chairman Marcelo Silva Vice Chairman Cristóbal Sánchez Director Rafael López Chief Executive Officer Juan Pablo Spoerer SYNAPSIS CO LOM BIA Name Synapsis Colombia Limitada Kind of company: Limited partnership RUT 830,054,730-1 SYNAPSIS BR ASIL Name Synapsis Brasil Limitada Kind of company: Limited partnership Tax No.: 01,855,536/0001-51 Address: Av. Rio Branco, 01 – Sala 508 – Centro – RJ Cep: 20090-003 Telephone: (55 21) 2550-8590 until 8595 Fax: (56-2) 2550-8590 until 8595 (anexo 204) External auditors: Deloitte Touche Tohmatsu Address: Carrera 13 A No. 93-66 Piso 6° Bogotá, D.C. Subscribed and Paid Capital (reals) 390,334 Telephone: (57-1) 601 5800 Fax: (57-1) 601 5915 External auditors: Deloitte Colombia Ltda. Subscribed and Paid Capital (Colombian pesos) 238,446,000 Holding of Enersis (direct and indirect) 100% Corporate objects (extract): Supply and commercialization of services and equipment related to computing and data processing to Chilean or foreign public utility and other companies ADMINISTRATION Chairman Claudio Rafael Guzmán Holding of Enersis (direct and indirect) 100% Corporate objects (extract): Provision of consultancy and technical assistance in the computing and data processing area to Brazilian or foreign companies; The development of information technology programs and systems; the sale of IT and data processing equipment; the manufacture, purchase, sale, import, export, representation, consignment and distribution of all kinds of assets connected with the above objects; and participations in other companies that operate in the above sector or in electricity BOARD OF DIRECTORS Chairman Leonardo Miguel Covalschi Directors Antonio Jaime Bravo Carlos Alberto Acero Senior executives Chief Executive Officer Leonardo Miguel Covalschi Legal Counsel Manager Administration & Finance Jacqueline Gomes Manager Human Resources Marcia Caporazzo O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 102 Securities Register No.: Inscribed with the Justice authority on November 10, 1992. The transformation to a limited partnership was inscribed with the same authority on September 3, 2002. Corporate objects (extract): Provide professional and technical services in the purchase and sale of materials or equipment for electricity, water, gas or communications services. C A M BR ASIL Name Cam Brasil Multiserviços Limitada External auditors: Deloitte & Co SRL Total number of shares: (cuotas) 466,129 Subscribed and Paid Capital (Argentine pesos) 466,129 Holding of Enersis (direct and indirect) 100% Corporation with no board of directors Chief Executive Officer Mario Albornoz C A M CO LOM BIA Name Compañía Americana de Multiservicios Limitada Colombia Corporate objects (extract): Provide services related to computing, data processing and other IT services in telecommunications and control, and of training in activities related to the above. Kind of company: Limited partnership Tax No.: 830,058,272-8 Management Managers Claudio Rafael Guzmán José María Gil Javier Sampayo Alternate Manager Mariano Florencio Grondona Address: AV. Carrera 68 No. 5-21, Bogotá, Colombia Telephone: (57-1) 4173000 Fax: (57-1) 5651012 Senior Executives Chief Executive Officer José María Gil Chief Administration, Finance & Human Resources Officer Javier Sampayo External auditors: Deloitte & Touche Ltda. Total number of shares: 1,615,500 C A M PERÚ Name Compañía Americana de Multiservicios del Perú S. A. Kind of company: Corporation Tax No.: 20,388,101,971 Address: Jr. Teniente César López Rojas 201, Piso 3, Maranga, San Miguel, Lima, Perú Telephone: (0511) 5611604 Fax: (0511) 4523007 External auditors: Gris y Hernández y Asociados S.AC. – Deloitte & Touche. Total number of shares: 1,320,610 Subscribed and Paid Capital (Peruvian soles) 1,320,610 Holding of Enersis (direct and indirect) 100% Subscribed and Paid Capital (Th$) 1,615,500,000 Holding of Enersis (direct and indirect) 100% Corporate objects (extract): Provide professional and technical services in the purchase and sale of materials or equipment for electricity, water, gas or communications services. BOARD OF DIRECTORS: CAM COLOMBIA Composición Accionaria 99.9999% Represented by Sr. Pantaleon Calvo. SYNAPSIS Composición Accionaria 0.0001% Represented by Sr. Alvaro Pérez SENIOR EXECUTIVES Chief Executive Officer Carlos Mario Restrepo Legal Counsel (Servicio Externo prestado por Codensa) Chief Commercial Officer Javier Valdez Chief Procurement & Logistics Officer Américo Mikly Chief Operations Officer Juan Camilo Vargas Chief Metering Systems Officer Alexander Mossos Projects Director Fabio Gómez Head of Planning & Control Mauricio Salinas Head of Administration & Human Resources Claudia Durán 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S Kind of company: Limited partnership Tax No.: 04,214,233/0001-48 Address: Av José Mendonça de Campos, 680 São Gonçalo - RJ Telephone: (55-21) 2717-2222 Fax: (55-21) 2702-8000 PO Box: 24,470-700 External auditors: Deloitte Touche Tohmatsu. Subscribed and Paid Capital (Th$) 252,216 Holding of Enersis (direct and indirect) 100% Corporate objects (extract): Provision of electrical engineering services, construction of networks and large works, mass commercial services in utilities. SENIOR EXECUTIVES Chief Executive Officer Fernando Foix Chief Commercial Officer Pablo Edmundo Calderon Chief Administration & Resources Officer Francisco Loza Chief Finance, Planning & Control Officer Antonio José Nóboa Chief Commercial Processes Officer Iván Castillo Chief Losses Services Officer Jorge Vergara Chief Metering Services Officer Santiago Contreras Manager, Fortaleza subsidiary Marco Laforet C A M ARGENTI NA Name Compañía Americana de Multiservicios (CAM) S.R.L. Kind of company: Limited partnership Tax No.: 30-66188247-2 Address: Av. Vélez Sarsfield 1160, Capital Federal, Argentina 103 Telephone: 0054 11 4302 2951/58 Fax: 0054 11 4302 2951/58 Corporate objects (extract): The construction of all kinds of civil works, installations, buildings, housing, offices, etc; the sale and disposal of such works and buildings; the study & development of such projects. AGUAS SANTIAG O P O N IENTE Inscription in Securities Register: Inscribed with the Justice authority on September 27, 1993 (No.9274). Its transformation to a limited partnership was inscribed with the same authority on January 7, 2003 (No.166). Number of partnership rights: The capital is $1,000,000 divided into 1,000,000 rights. Subscribed and paid capital: The capital is fully paid up. Participación de Enersis (directa e indirecta) 99.90% Corporate objects (extract): The provision of professional and technical services to entities in consultancy, technical assistance, assembly, process control, start up and maintenance of systems, machinery and apparatus, maintenance of transport and distribution networks, all related to electricity. Manager Mauricio Naser Alternate Manager Marcelo Luis Rull CO NSTRUCCI O N ES Y PROYEC TOS LOS M AITEN ES Name Construcciones y Proyectos Los Maitenes S.A. Kind of company: Closely-held corporation Tax No.: 96,764,840-K Address: Américo Vespucio 0100, Pudahuel, Santiago Telephone: 6010601 Fax: 6010519 External auditors: Deloitte & Touche Total number of shares: 295,100 Subscribed and Paid Capital (Th$) 3,809,503 Holding of Enersis (direct and indirect) 55% BOARD OF DIRECTORS Chairman Cristóbal Sánchez Directors Manuel Jarpa Andrés Salas Luis Felipe Edwards Patricio Parodi Chief Executive Officer Bernardo Küpfer Name Aguas Santiago Poniente S.A. Kind of company: Closely-held corporation Tax No.: 96,773,290-7 Address: Américo Vespucio No0100, Pudahuel, Santiago AGRÍCO L A E I N MO BILIARIA PASTOS VERD ES Telephone: 6010601 Fax: 6010519 Name Agrícola e Inmobiliaria Pastos Verdes Limitada External auditors: Deloitte & Touche Kind of company: Limited partnership Tax No.: 78,970,360-4 Address: Santa Rosa 76, Santiago Telephone: 6010601 Fax: 6010519 Securities Register No.: Not applicable External auditors: Deloitte & Touche Subscribed and Paid Capital (Th$) 37,029,390 Holding of Enersis (direct and indirect) 55% Corporate objects (extract): The exploitation of farm land and the development of real estate activities. Acciones 1,876,271 Subscribed and Paid Capital (Th$) 3,075,927 Holding of Enersis (direct and indirect) 55% Corporate objects (extract): Exclusively to establish, construct and exploit public utilities for the production and distribution of drinking water; collect, treat and dispose of waste waters and perform the other functions required by law. BOARD OF DIRECTORS Chairman Víctor Manuel Jarpa Directors Cristóbal Sánchez Andrés Salas Luis Felipe Edwards Patricio Parodi Chief Executive Officer Jorge Alé AGRÍCO L A D E C A MEROS ADMINISTRATION Complete with the presence of 3 representatives together. Name Sociedad Agrícola de Cameros Chief Executive Officer Bernardo Küpfer Kind of company: Limited partnership Tax No.: 77,047,280-6 Address: Camino Polpaico a Til-Til, S/N Til-Til. O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 104 Telephone: 3784700 Fax: 3784702 External auditors: Deloitte & Touche Subscribed and Paid Capital (Th$) 5,738,046 Holding of Enersis (direct and indirect) 57.5% Corporate objects (extract): The exploitation of farm land. Senior Executives Chief Executive Officer Miguel Ortiz Chief Administration & Finance Officer Gabriel Cerda Chief Human Resources Manager Rigoberto Allendes Chief Performance Control Officer Jorge Burlando Chief Commercial Manager Sergio Schmois Chief Production Manager Francisco Monteleone CH O CÓ N ADMINISTRATION Complete with the presence of 3 representatives together. Name Hidroeléctrica El Chocón S.A. Chief Executive Officer Hugo Ayala COSTAN ER A Name Central Costanera S.A. Kind of company: Corporation Address: Av. España 3301, Buenos Aires, Argentina. Corporate objects (extract): The production of electricity and its sale in blocks. Paid capital (ThCh$): 90,299,357 Holding of Enersis (direct and indirect) 38.5% Directors Chairman Héctor López Vice Chairman Máximo Bomchil Julio Valbuena Rafael Mateo José María Hidalgo Roberto Fagan César Amuchástegui Pablo Piñera Eduardo J. Romero Alternate Directors Carlos Martín Vergara María Soledad Martínez Jorge Burlando Sergio Schmois José Miguel Granged Gabriel Cerdá Bernardo Iriberri Alfredo Mauricio Vítolo Sebastián Piñera Kind of company:: Corporation Address: Av. España 3301, Buenos Aires; Argentina. Corporate objects (extract): The production of electricity and its sale. Paid capital (ThCh$): 188,522,713 Holding of Enersis (direct and indirect) 28.5% Vice Chairman Francisco Mezzadri Antonio Cámara Miguel Ortiz Julio Valbuena Eduardo Adrián Carbajo José Luis Mazzone Javier Zuber Alternate Directors Fernando Antognazza Francisco Domingo Monteleone José María Hidalgo José Miguel Granged Susana Alcira Arévalo Enrique Díaz Carlos Arturo Principi Rubén Paramidani Chief Executive Officer Fernando Claudio Antognazza EN D ESA ARGENTI NA Name Endesa Argentina S.A. Kind of company: Corporation 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S Address: Suipacha 268, piso 12, Buenos Aires, Argentina. Corporate objects (extract): Investments in companies producing, transporting and distributing electricity and its sale, and other financial investments. Paid capital (ThCh$): 22,980,791 Holding of Enersis (direct and indirect) 60.0% Directors Chairman José Miguel Granged Vice Chairman Néstor José Belgrano Director Francisco Martín Alternate Directors José María Hidalgo Patricio Alberto Martín Marcelo A. Den Toom H I D RO I NVEST Name Hidroinvest S.A. Kind of company: Corporation Address: Av. España 3301, Buenos Aires; Argentina. Corporate objects (extract): Acquire and maintain a majority holding in Hidroeléctrica El Chocón S.A. Paid capital (ThCh$): 10,149,225 Holding of Enersis (direct and indirect) 41.9% BOARD OF DIRECTORS Chairman Héctor López Vice Chairman Francisco Mezzadri Directors Héctor López Antonio Cámara Fernando Claudio Antognazza Julio Valbuena Francisco Domingo Monteleone Carlos Principi 105 Alternate Directors Viviana Soria Daniel Garrido José Miguel Granged José María Hidalgo Roberto Fagan Gabriel Cerdá Rigoberto Allendes Sergio Falzone C ACH O EIR A D O U R ADA Name Centrais Elétricas Cachoeira Dourada S.A. Kind of company: Open corporation Address: Av.República del Líbano 2,417, Oficina Nº702, Ed. Paladium Center Goiania, Goiás - 74,115,030 – Brasil. Corporate objects (extract): The planning, construction, installation, operation and exploitation of electricity generating plants and related activities. Paid capital (ThCh$): 144,462,473 Holding of Enersis (direct and indirect) 55.5% BOARD OF DIRECTORS Chairman Francisco Javier Bugallo Directors Nicolás Pérez Raimundo Cámara SENIOR EXECUTIVES Chief Executive Officer Francisco Bugallo Chief Commercial officer Manuel Herrera Chief Trading Officer Juan Pablo Herrera EN D ESA BR ASIL Name Endesa Brasil Participacoes Ltda. Kind of company: Limited partnership Address: Praia de Botafogo 228, Oficina Nº1.105, Río de Janeiro, R.j. 22 359-900 - Brasil. Corporate objects (extract): Investments in companies and the provision of services related to the electricity sector generating plants and related activities, and the detection and study of new markets and alternative investments, especially in electricity. Paid capital (ThCh$): 161,921,504 Holding of Enersis (direct and indirect) 55.6% Paid capital (ThCh$): 673,566 Holding of Enersis (direct and indirect) 60.0% Representatives Francisco Javier Bugallo Manuel Herrera I N GEN D ESA BR ASIL Razón social Ingendesa do Brasil Ltda. BOARD OF DIRECTORS Chairman Claudio Iglesis Vice Chairman Alan Fischer Directors Leonardo Contreras Enrique Lozán Alejandro Wendling Osvaldo Muñoz Pedro Gatica Chief Executive Officer Lucio Castro Márquez Kind of company: Sociedad de responsabilidad limitada PAN GU E Address: Rua Uruguaiana N° 94, Pavimento 05, Centro - Río de Janeiro, Rj - Cep 20,050 - 090, Brasil. Name Empresa Eléctrica Pangue S.A. Kind of company: Closely-held corporation Tax No.: 96,589,170-6. Address: Santa Rosa 76, Santiago, Chile. Corporate objects (extract): The generation, transport, distribution and provision of electricity, and the acquisition of concessions for this purpose. Paid capital (ThCh$): 73,590,496 Holding of Enersis (direct and indirect) 57.0% BOARD OF DIRECTORS Chairman Claudio Iglesis Vice Chairman Alan Fischer Director Alejandro Wendling Chief Executive Officer Lionel Roa Corporate objects (extract): Provision of engineering, studies, projects, technical consultancy, works management and supervision, inspection and reception of material and equipment, and laboratory services. Paid capital (ThCh$): 117,570 Holding of Enersis (direct and indirect) 58.6% Representative Chief Executive Officer Sergio Campos PEH U ENCHE Name Empresa Eléctrica Pehuenche S.A. Kind of company: Open corporation Tax No.: 96,504,980-0 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): The generation, transport, distribution and provision of electricity, and the acquisition of concessions for this purpose. O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 106 CELTA Paid capital (ThCh$): 31,529,181 I N GEN D ESA Name Compañía Eléctrica Tarapacá S.A. Holding of Enersis (direct and indirect) 44.5% Name Empresa de ingeniería Ingendesa S.A. Kind of company: Closely-held corporation Tax No.: 96,770,940-9. Address: Santa Rosa 76, Santiago, Chile. Corporate objects (extract): The principal objective of this coorporation is the production, transportation and distribution of national and international energy supply. For this purpose it shall obtain the corresponding concession rights. Furtheremore, among some of it’s more important goals are the construction of a thermoelectric generation plant and the construction and operation of a pier suitable for the loading and unloading of raw materials and other products of the patache sector (first region). It will also being in charge of the construction of a transmision and sub-stations between the before mentioned thermoelectric generation plant and the Doña Inés de Collahuasi copper mine. This will also help in the reinforcement of the SING. Paid capital (ThCh$): 83,337,314 Holding of Enersis (direct and indirect) 60.0% BOARD OF DIRECTORS Chairman Alejandro Wendling Directors Alan Fischer Hill Rodrigo Naranjo Chief Executive Officer Eduardo Soto SAN ISI D RO Name Compañía Eléctrica San Isidro S.A. Kind of company: Closely-held corporation Tax No.: 96,783,220-0. Address: Santa Rosa 76, Santiago, Chile. Corporate objects (extract): The generation, transport, distribution and provision of electricity. DIRECTORS Chairman Alejandro Wendling Vice Chairman Javier García Claudio Iglesis Alan Fischer Pedro Gatica Alternate directors Alejandro García Joseph Lessard Rodrigo Naranjo Osvaldo Muñoz Claudio Betti Chief Executive Officer Claudio Iglesis I NVERSI O N ES ELÉC TRIC AS Q U ILLOTA Name Inversiones Eléctricas Quillota S.A. Kind of company: Closely-held corporation Tax No.: 96,827,970-k Address: Santa Rosa 76, Santiago, Chile Kind of company: Closely-held corporation Tax No.: 96,588,800-4 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): The provision of engineering, works inspection, inspection and reception of materials and equipment, and laboratory services in different fields and in general consultancy services in all fields. Paid capital (ThCh$): 1,926,614 Holding of Enersis (direct and indirect) 58.6% BOARD OF DIRECTORS: Chairman: Rafael Mateo Rafael de Cea Santiago Sabugal Chief Executive Officer: Juan Benabarre TÚ N EL EL MELÓ N Name Sociedad Concesionaria Túnel El Melón S.A. Corporate objects (extract): Invest in Compañía Eléctrica San Isidry S.A. or the entity legally succeeding it. Kind of company: Closely-held corporation Paid capital (ThCh$): 15,687,240 Holding of Enersis (direct and indirect) 30.0% DIRECTORS Chairman Alejandro Wendling Javier García Burgos Claudio Iglesis Alternate directors Alan Fischer Joseph Lessard Rodrigo Naranjo Chief Executive Officer Claudio Iglesis Tax No.: 96,671,360-7 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): Construction and exploitation of the public El Melon highway tunnel. Paid capital (ThCh$): 8,932,247 Holding of Enersis (direct and indirect) 60.0% BOARD OF DIRECTORS: Chairman: Alejandro González Jorge Ale Renato Fernández Chief Executive Officer: Maximiliano Ruiz 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 107 EN I GESA Name Endesa Inversiones Generales S.A. Kind of company: Sociedad Anónima Cerrada Tax No.: 96,526,450-7 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): The provision of engineering, works inspection, inspection and reception of materials and equipment, and laboratory services in different fields and in general consultancy services in all fields. Paid capital (ThCh$): 2,470,089 Holding of Enersis (direct and indirect) 60.0% BOARD OF DIRECTORS Alejandro González Juan Carlos Mundaca Jaime Montero Chief Executive Officer: Juan Carlos Mundaca Álvarez I NVERSI O N ES EN D ESA N O RTE Name Inversiones Endesa Norte S.A. Kind of company: Closely-held corporation Tax No.: 96,887,060-2 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): Investments in energy projects in the north of Chile related to Gasoducto Atacama Compañía Limitada, Gasoducto Cuenca Noroeste Ltda. and Noroeste Pacífico Generación de Energía Ltda and Administradora Proyecto Atacama S.A. Paid capital (ThCh$): 74,827,340 Holding of Enersis (direct and indirect) 60.0% BOARD OF DIRECTORS Chairman: Alejandro González Manuel Irarrázaval Rafael Mateo Alternate Directors Juan Benabarre Raúl Arteaga Chief Executive Officer: Juan Benabarre EMGESA Name Emgesa S.A. E.S.P. Kind of company: Public utility corporation Address: Carrera 11 Nº 82-76, Piso 3 Santa Fe de Bogotá, D.C. Colombia. Corporate objects (extract): The generation and sale of electricity and related activities Paid capital (ThCh$): 700,273,325 Holding of Enersis (direct and indirect) 12.7% BOARD OF DIRECTORS Chairman: Andrés Regué Rafael Errázuriz Alejandro González Alejandro Zaccour José Antonio Vargas Enrique Borda Pedro Arturo Rodríguez Camilo Sandoval Juan Rincón Alternate Directors Gustavo López Lucio Rubio Carlos Alberto Luna Martha Veleño Fernando Gutiérrez Alvaro José Cruz Henry Navarro Héctor Zambrano Manuel Jiménez Senior Executives Chief Executive Officer: Lucio Rubio Chief Administration & Finance Officer Gustavo López Chief Performance Control Officer Luis Larumbe Chief Operations Officer Carlos Alberto Luna Chief Commercial Officer Fernando Gutiérrez BE TAN IA Name Central Hidroeléctrica de Betania S.A. E.S.P. Kind of company: Public utility corporation Address: Carrera 5 Nº 6-28, Edificio Metropolitano, Torre B, Piso 5º, Neiva, Colombia. Corporate objects (extract): The generation and sale of electricity Paid capital (ThCh$): 392,608,034 Holding of Enersis (direct and indirect) 51.4% BOARD OF DIRECTORS Chairman: Lucio Rubio Alejandro Zaccour Alejandro González Rafael Errázuriz Mario Scarpetta Alternate Directors Andrés Regué Luis Humberto Ustariz Fernando Gutiérrez Alvaro José Cruz Carlos Alberto Luna Chief Executive Officer: Carlos Alberto Luna C APITAL EN ERGÍA Name Capital Energía S.A. Kind of company: Commercial corporation Address: Santafé de Bogotá, D.C. Colombia Corporate objects (extract): Investment in Empresa de Energía Eléctrica de Bogotá S.A.E.S.P. and in other electricity generating, distribution and transmission companies. Paid capital (ThCh$): 415,714,494 Holding of Enersis (direct and indirect) 26.2% Directors Andrés Regué Rafael Errázuriz Lucio Rubio Alejandro González Alvaro José Cruz O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 108 Alternate Directors Fernando Gutiérrez Carlos Alberto Luna Gustavo López Juan Manuel Pardo Isabel Cristina Solano Chief Executive Officer: Lucio Rubio ED EGEL Name Edegel S.A.A. Kind of company: Corporation Address: Av. Víctor Andrés Belaúnde N° 147 Vía Principal N° 102 Centro Empresarial Camino Real , San Isidro, Lima, Perú. Corporate objects (extract): Electricity generation. Paid capital (ThCh$): 463,747,210 Holding of Enersis (direct and indirect) 22.7% Directors Chairman: Héctor López Vice Chairman Javier García Burgos Juan Benabarre Fritz Du Bois José María Hidalgo Ricardo Harten Alfonso Bustamante Alternate Directors José Graña Edwin Vásquez Francisco García Roberto Cornejo Milagros Noriega Jaime Zavala Joseph Lessard Senior Executives Chief Executive Officer: José Griso Chief Legal Counsel Joanna Zegarra Chief Financial Officer Milagros Noriega Chief Operations Officer Julián Cabello Chief Commercial Officer Robert Cornejo GEN ER AN D ES PERÚ Name Generandes Perú S.A. Kind of company: Corporation Address: Av. Víctor Andrés Belaúnde N°147, Torre Real, San Isidro, Lima, Perú. Corporate objects (extract): Business relating to electricity generation, directly or through other companies. Paid capital (ThCh$): 198,987,190 Holding of Enersis (direct and indirect) 35.8% Directors Chairman: Héctor López Vice Chairman Javier García Burgos José Griso Juan Benabarre José María Hidalgo Mario Valcarce (Chief Executive Officer: Enersis S.A.) Joseph Lessard Fritz Du Bois Alternate Directors Edwin Vásquez Juan Antonio Rozas César Montero Julio Lemaitre Steve Pearlman Milagros Noriega Roberto Cornejo Guillermo Lozada Chief Executive Officer: José Griso Chief Executive Officer Milagros Noriega CO N O SU R Name Compañía Eléctrica Cono Sur S.A. Kind of company: Corporation Address: Edificio Omega. Av. Samuel Lewis y Calle 53, Apartado Postal 4493, Panamá 5, República de Panamá. Corporate objects (extract): To carry out any kind of business; generate, transmit, supply and distribute electricity generation; acquire and sell shares, securities and assets in general. Paid capital (ThCh$): 924,324,645 Holding of Enersis (direct and indirect) 60.0% Directors Chairman: Alejandro González Manuel Irarrázaval Alfredo Ergas (Chief Regional Finance Officer of Enersis) Carlos Martin Vergara L A JAS I NVERSO R A Name Lajas Inversora S.A. Kind of company: Corporation Address: Edificio Omega. Av. Samuel Lewis y Calle 53, Apartado Postal 4493, Panamá 5, República de Panamá. Corporate objects (extract): To carry out any kind of business; generate, transmit, supply and distribute electricity generation; acquire and sell shares, securities and assets in general. Change of name The change of name from Lajas Holdings Inc. to Lajas Inversiones S.A. was approved by an extraordinary shareholders’ meeting held on August 16, 2001. Paid capital (ThCh$): 406,584,648 Holding of Enersis (direct and indirect) 55.7% Directores Chairman: Carlos Martín Vergara Treasurer Alejandro González Alfredo Ergas (Chief Regional Finance Officer of Enersis) Manuel Irarrázaval José Griso Chief Executive Officer: Francisco Javier Bugallo 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 109 Alternate Directors Juan Carlos Blanco Roberto José Fagan Daniel Garrido Chief Executive Officer: Roberto José Fagan C TM Name Compañía de Transmisión del Mercosur S.A. Kind of company: Corporation Directors Chairman: José María Hidalgo Francisco Javier Bugallo José Agustín Venegas Alternate Directors Arturo Papalardo Juan Carlos Blanco Roberto José Fagan Chief Executive Officer: Francisco Javier Bugallo GASO D UC TO ATAC A M A Address: Bartolomé Mitre 797, Piso 13, Buenos Aires, Argentina. ARGENTI NA EN D ESA CH ILE I NTERNACI O NAL Name Endesa Chile Internacional Kind of company: Corporation Address: Caledonian Bank & Trust Limited, Caledonian House, Mary Street P.o. Box 1043, George Town, Grand Cayman, Cayman Islands. Corporate objects (extract): To carry out any kinds of business as permitted by the law of the Cayman Islands. Change of Name: The change of name from Endesa Chile Overseas Co. to Endesa Chile Internacional was approved by an extraordinary shareholders’ meeting held on August 16, 2001. Paid capital (ThCh$): 483,372,831 Holding of Enersis (direct and indirect) 60.0% DIRECTORS Alejandro González Carlos Martín Vergara Manuel Irarrázaval Alfredo Ergas (Chief Regional Finance Officer of Enersis) CEMSA Corporate objects (extract): The provision of high-tension electricity transportation services. Paid capital (ThCh$): 7,901,702 Holding of Enersis (direct and indirect) 27.0% Directors Chairman: José María Hidalgo Francisco Javier Bugallo José Agustín Venegas Alternate Directors Arturo Papalardo Juan Carlos Blanco Roberto José Fagan Name Comercializadora de Energía del Mercosur S.A. Chief Executive Officer: Francisco Javier Bugallo Kind of company: Corporation Address: Avenida España 3301, Sector B, Buenos Aires, Argentina. Corporate objects (extract): Wholesale trading of electricity including its import and export and the provision of related services. Paid capital (ThCh$): 7,810,289 Holding of Enersis (direct and indirect) 27.0% Directors Chairman: José María Hidalgo Vice Chairman José Agustín Venegas Francisco Javier Bugallo TESA Name Transportadora de Energía S.A. Kind of company: Corporation Address: Bartolomé Mitre N° 797, Piso 13, Oficina 79, Buenos Aires, República Argentina. Corporate objects (extract): The provision of high-tension electricity transportation services. Paid capital (ThCh$): 8,367,689 Holding of Enersis (direct and indirect) 27.0% O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S Name Gasoducto Atacama Argentina S.A. Kind of company: Closely-held corporation Tax No.: 78,952,429-3 Address: Isidora Goyenechea 3365, Santiago, Chile. Corporate objects (extract): The transportation of natural gas in Chile and abroad including the construction, location and exploitation of gas pipelines and related activities. The company formed an agency in Argentina called Gasoducto Cuenca Noroeste Limitada, Argentina Branch, for building the pipeline between Cornejo in Salta province and the Chilean border. Paid capital (ThCh$): 58,821,686 Holding of Enersis (direct and indirect) 30.0% Directors Chairman: Rafael Mateo Alejandro González Tom Miller Francisco Mezzadri Alternate Directors Juan Benabarre Rafael de Cea David Kehoe David Baughman Chief Executive Officer: Rudolf Araneda 110 CIEN Name Compañía de Interconexión Energética S.A. Kind of company: Corporation Address: Praia de Botafogo 228, Ala B, 4ª Andar, Río de Janeiro, R.j. 22 359-900 - Brasil. Corporate objects (extract): The production, industrialization, distribution and commercialization of electricity, including imports and exports. Paid capital (ThCh$): 108,488,434 Holding of Enersis (direct and indirect) 27.0% Directors Chairman: Marcelo Llévenes Roberto José Fagan José Venegas Alternate Directors Nicolás Pérez Francisco Javier Bugallo Chief Executive Officer: Francisco Javier Bugallo ELEC TRO GAS Name Electrogas S.A. Kind of company: Closely-held corporation Tax No.: 96,806,130-5 Alternate Directors Daniel Martínez Felipe Aldunate Pedro Cruz Gustavo Rioseco Francisco Courbis Chief Executive Officer: Carlos Andreani TR ANSQ U ILLOTA Name Transmisora Eléctrica de Quillota Ltda. Kind of company: Limited partnership Tax No.: 77,017,930-0 Address: Santa Rosa 76, Santiago, Chile. Corporate objects (extract): The transport, distribution and supply of electricity. Paid capital (ThCh$): 3,507,137 Holding of Enersis (direct and indirect) 22.5% Representatives Rodrigo Naranjo Gabriel Carvajal Felipe Aldunate Eduardo Morel Alternate Representatives Alfonso Bahamondes Alejandro Larenas Enrique Sánchez Ricardo Sáez Address: Apoquindo 3076 Oficina 402, Santiago, Chile. Corporate objects (extract): Natural gas and other fuels transportation services for which it may build, operate and maintain gas, oil or multi-purpose pipelines and complementary installations., Paid capital (ThCh$): 10,703,686 Holding of Enersis (direct and indirect) 25.6% Directors Chairman: Jaime Fuenzalida Claudio Iglesis Gabriel Alejandro Marcuz Pedro Gatica Andrés Vargas I NVERSI O N ES GASATAC A M A H O LD I N G Name Inversiones Gasatacama Holding Limitada Kind of company: Limited partnership Tax No.: 76,014,570-K Address: Santiago, Chile Corporate objects (extract): Investments in companies that transport natural gas; generate, transmit, purchase, distribute and sell energy; and the financing of the above. Paid capital (ThCh$): 177,562,499 Holding of Enersis (direct and indirect) 30.0% Directors Rafael Mateo Tom Miller Alfredo Ergas (Chief Regional Finance Officer of Enersis) Francisco Mezzadri Alternate Directors Rafel de Cea David Baughman Juan Benabarre David Kehoe GASATAC A M A Name Gasatacama S.A. Kind of company: Closely-held corporation Tax No.: 96,830,980-3 Address: Isidora Goyenechea 3365, Piso 8, Santiago, Chile Corporate objects (extract): Management of Gasoducto Atacama Chile Ltda, Gasoducto Atacama Argentina Ltda. and others; investment in all kinds of assets. Paid capital (ThCh$): 162,473,231 Holding of Enersis (direct and indirect) 30.0% Directors Chairman: Rafael Mateo Alejandro González Tom Miller Francisco Mezzadri Alternate Directors Juan Benabarre Rafael de Cea David Kehoe David Baughman Chief Executive Officer: Rudolf Araneda GASO D UC TO ATAC A M A CH ILE Name Gasoducto Atacama Chile S.A. Kind of company: Closely-held corporation 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 111 Paid capital (ThCh$): 1,739,202 Holding of Enersis (direct and indirect) 29.9% Directors Rudolf Araneda Pedro de La Sota Rafael Zamorano Matías Avendaño Alternate Directors Alejandro Amenábar Alejandro Sáez Eric Bongardt Luis Vergara Chief Executive Officer: Rudolf Araneda Tax No.: 78,882,820-9 Address: Isidora Goyenechea 3365, Piso 8, Santiago, Chile. Corporate objects (extract): The transport of natural gas within Chile and other countries, including the building of gas pipelines and related activities. Alternate Directors Juan Benabarre Rafael de Cea David Kehoe David Baughman Chief Executive Officer: Rudolf Araneda Paid capital (ThCh$): 35,745 Holding of Enersis (direct and indirect) 30.0% Directors Chairman: Rafael Mateo Alejandro González Tom Miller Francisco Mezzadri Alternate Directors Juan Benabarre Chief Executive Officer: Ingendesa Rafael de Cea David Kehoe David Baughman Chief Executive Officer: Rudolf Araneda GASATAC A M A GEN ER ACI Ó N Name Gasatacama Generación S.A. Kind of company: Closely-held corporation Tax No.: 78,932,860-9 Address: Isidora Goyenechea 3365, Santiago, Chile. Corporate objects (extract): The generation, transmission, purchase, distribution and sale of electricity; the purchase, extraction, exploitation, processing, distribution and sale of solid, liquid and gas fuels; the provision of engineering services; concessions of all kinds; investments in all assets; the formation of companies related to energy. Paid capital (ThCh$): 67,388,344 Holding of Enersis (direct and indirect) 30.1% Directors Chairman: Rafael Mateo Alejandro González Tom Miller Francisco Mezzadri I NVERSI O N ES ELEC TRO GAS Name Inversiones Electrogas S.A. Kind of company: Closely-held corporation Tax No.: 96,889,570-2 Address: Apoquindo 3076, Oficina 402, Santiago, Chile I N GEN D ESA M I N ME TAL Corporate objects (extract): Investment in the shares of Electrogas S.A. Name Consorcio IngEndesa–Minmetal Ltda. Paid capital (ThCh$): 10,666,916 Holding of Enersis (direct and indirect) 25.5% Kind of company: Limited partnership Tax No.: 77,573,910-k Address: Santa Rosa N° 76, Santiago, Chile Corporate objects (extract): The provision of all kinds of engineering services. Paid capital (ThCh$): 2,000 Holding of Enersis (direct and indirect) 29.3% Representatives Juan Benabarre Carlos Freire Alternate Representatives Rodrigo Alcaíno Rodrigo Muñoz Alejandro Mercados Osvaldo Dunner I N GEN D ESA - AR A Razón social Sociedad consorcio Ingendesa - Ara Ltda. Kind of company: Limited partnership Tax No.: 76,197,570-6 Address: Santa Rosa 76, Santiago, Chile Directors Chairman: Jaime Fuenzalida Alejandro Marcuz Pedro Gatica Claudio Iglesis Daniel Martínez Alternate Directors Andrés Vargas Felipe Aldunate Pedro Cruz Gustavo Rioseco Francisco Courbis Chief Executive Officer: Carlos Andreani GASO D UC TO TALTAL Name Gasoducto Taltal S.A. Kind of company: Closely-held corporation Tax No.: 77,032,280-4 Address: Santa Rosa 76, Santiago, Chile Corporate objects (extract): Transportation, commercialization and distribution of natural gas within Chile, especially between Mejillones and Paposa, including the construction and exploitation of pipelines and other related activities. O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S O T H E R S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 112 Corporate objects (extract): The provision of all kinds of engineering services. Paid capital (ThCh$): 1,161 Paid capital (ThCh$): 1,000 Holding of Enersis (direct and indirect) 29.3% Representatives Juan Benabarre Alejandro Santolaya Alternate Representatives Rodrigo Alcaíno Alejandro Mercados Elías Arce Cristián Araneda AR A - I N GEN D ESA Razón social Consorcio Ara - Ingendesa Ltda. Kind of company: Limited partnership Tax No.: 77,625,850-4 Holding of Enersis (direct and indirect) 30.0% BOARD OF DIRECTORS: Rudolf Araneda Luis Cerda Pedro de La Sotta Chief Executive Officer: Alejandro Sáez EN ERGE X Razón social Energex Co. Kind of company: Exempt Corporation Address: Caledonian House P.O. Box 265 G, George Town, Grand Cayman, Cayman Islands. Corporate objects (extract): Any business in accordance with the law of the Cayman Islands. BOARD OF DIRECTORS: Chairman: William J. Haener Mario Valcarce (Chief Executive Officer: de Enersis) Alfredo Ergas (Chief Regional Finance Office of Enersis) Rodney E. Boulanger SACME Razón social Sacme S.A. Kind of company: Closely-held corporation Tax No.: 30-65942051-8 Address: Avda. España 3251 – Ciudad Autónoma de Buenos Aires, Argentina Telephone: 4361-5107 Fax: 4307-0701 Address: Santa Rosa 76 Piso 10, Santiago, Chile Paid capital (ThCh$): 5,574 External auditors: Estudio Alonso Hidalgo & Asociados. Corporate objects (extract): The provision of all kinds of engineering services. Holding of Enersis (direct and indirect) 29.8% Total number of shares: 12,000 Paid capital (ThCh$): 1,000 Holding of Enersis (direct and indirect) 29.3% Representatives Juan Benabarre Alejandro Santolaya Alternate Representatives Fernando Orellana Alejandro Mercados Rodrigo Alcaíno Elías Arce Cristián Araneda PRO GAS Razón social Progas S.A. Kind of company: Limited partnership Tax No.: 77,625,850-4 BOARD OF DIRECTORS: Chairman: William J. Haener Mario Valcarce (Chief Executive Officer: de Enersis) Alfredo Ergas (Chief Regional Finance Office of Enersis) Rodney E. Boulanger ATAC A M A FI NANCE Razón social Atacama Finance Co. Kind of company: Exempt Corporation Address: Caledonian House P.o. Box 265 G, George Town, Grand Cayman, Cayman Islands. Corporate objects (extract): Any business in accordance with the law of the Cayman Islands. Paid capital (ThCh$): 3,511,620 Capital suscrito y pagado (Pesos Argentinos) 12,000 Holding of Enersis (direct and indirect) 32.5% Corporate objects (extract): Supervision and control of the electricity generation, transmission and distribution system in Buenos Aires and the interconnections with the Argentine Grid System (SADI). Represent the distribution companies Edenor S.A. and Edesur S.A. in operative work with Compañía Administradora del Mwercado Mayorista Eléctrico (CAMMESA). BOARD OF DIRECTORS: Chairman: Mario Nicolás Covacich Vice Chairman Daniel Héctor Colombo Directors Edgardo Alberto Volosín Leandro Ostuni Chief Executive Officer: Osvaldo Ernesto Rolando Address: Isidora Goyenechea 3356, 8° Piso, Santiago, Chile Holding of Enersis (direct and indirect) 29.8% Corporate objects (extract): The acquisition, production, storage, transport, distribution, transformation and commercialization of natural gas and of other oil derivatives and fuels in general, and the provision of related services. 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 113 C O M M E R C I A L R E L A T I O N S W I T H S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S The following tables show the commercial relations between Enersis S.A. and its subsidiaries and associates: TR A NSACTI O NS W ITH CHIL EAN S UBSID IAR IE S AND AS SO CIAT E S AT D ECE MBER 3 1, 20 04 COMPANY TA X NO . R E LA TI ONSHIP TR ANSACTION Chilectra S.A. 96.524.320-8 Subsidiary Loans Property rentals Services provided Inmobiliaria Manso de Velasco Ltda. Compañía Americana de Multiservicios Ltda. 79.913.810-7 Subsidiary Loans Property rentals 96.543.670-7 Subsidiary Loans Services provided Materials Property maintenance Synapsis, Soluciones y Servicios IT Ltda. 96.529.420-1 Subsidiary Loans Services received Endesa (Chile) 91.081.000-6 Subsidiary Loans Services provided Endesa Inversiones Generales S.A. 96.526.450-7 Related to subsidiary Property rentals AM OUNT 98,895,455 4,432,912 4,735,989 (8,869,004) (368,316) (4,836,514) 215,229 (18,324) (494,128) (1,657,475) (474,047) 929,866 739,618 (990,824) 92,240,437 EF FE CT ON RESULTS ( CHA RG E) CREDIT 4,460,581 4,432,912 4,735,989 (646,667) (368,316) (443,669) 215,229 (18,324) (494,128) (194,368) (474,047) 2,062,053 739,618 (990,824) 13,016,039 TR A NS A CT IO NS WITH F ORE IGN SU BSID IA R IE S A ND AS SOC IAT ES COMPANY TA X NO . R E LA TI ONSHIP TR ANSACTION AT D ECE MBER 3 1, 20 04 AM OUNT EF FE CT ON RESULTS ( CHA RG E) CREDIT Empresa Distribuidora Sur S.A. Foreign Subsidiary Services provided 1,968,506 1,968,506 through Agency: Chilectra S.A. (Cayman Islands Agency) Luz de Río Ltda. Enersis Internacional Chilectra Internacional Foreign Foreign Foreign Foreign Agency of subsidiary Subsidiary Subsidiary Subsidiary Loans Loans Loans Loans 308,861,143 26,153,180 4,530,047 3,796,843 21,136,955 1,716,375 400,218 56,936 Endesa Chile Internacional Foreign Subsidiary Loans (29,391,075) (25,830) Endesa Chile Agencia Foreign Agency of subsidiary Loans Global Total (25,192,350) 290,726,294 382,966,731 (64,184) 25,188,976 38,205,015 C O M M E R C I A L R E L A T I O N S W I T H S U B S I D I A R Y A N D A S S O C I A T E C O M P A N I E S 114 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 115 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 11 7 R EP O RT O F I N D EPEN D EN T ACCO U N TA N TS 11 8 CO N S O L I DAT ED BA L A N CE S H EE TS 12 0 CO N S O L I DAT ED I N CO M E STAT E M EN T 12 1 STAT E M EN TS O F CO N S O L I DAT ED C A S H FLOWS 12 3 12 4 CO N S O L I DAT ED STAT E M EN TS O F CH A N G ES I N S H A R EH O L D ERS’ EQ U I T Y N OT ES TO T H E CO N S O L I DAT ED FI N A N CI A L S TAT E M EN TS 23 4 CO N S O L I DAT ED M AT ER I A L I N F O R M AT I O N 24 1 M A N AG E M EN T’S A N A LYS I S O F T H E CO N S O L I DAT ED FI N A N CI A L STAT E M EN TS 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 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 116 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S 117 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 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 118 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) 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 Total current assets PROPERTY, PLANT AND EQUIPMENT Land Buildings and infrastructure and works in progress Machinery and equipment Other plant and equipment Technical appraisal Acumulated depreciation As of December 31, 2003 ThCh$ 2004 ThCh$ 2004 ThUS$ 27,029,488 56,494,414 262,660,971 450,743,859 11,434,635 12,321,537 478,849,624 528,740,129 8,571,693 96,549,123 17,486,628 45,415,899 62,818,496 16,863,806 53,023,911 75,777,002 2,828,014 63,814,202 114,385,763 50,981,315 97,637,872 45,011,188 60,005,717 36,117,180 101,353 808,654 22,105 948,583 5,074 114,485 205,213 91,463 175,167 80,752 107,653 64,796 1,156,481,276 1,519,081,190 2,725,298 118,340,129 122,606,995 10,305,284,602 9,864,985,666 1,806,292,572 1,721,120,263 356,791,936 398,709,319 634,958,011 584,183,038 (4,922,897,727) (5,006,783,339) 219,962 17,698,216 3,087,765 715,302 1,048,050 (8,982,388) Total property, plant and equipment, net 8,298,769,523 7,684,821,942 13,786,907 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 184,716,758 191,465,062 136,796,804 49,992,754 799,907,148 733,535,103 (81,215,498) (56,735,814) 131,133,420 125,910,089 132,331,429 456,246 79,100,256 80,708,810 (40,254,130) (44,013,845) 185,126,301 222,303,602 343,497 89,689 1,315,994 (101,786) 225,888 819 144,795 (78,963) 398,822 1,527,642,488 1,303,622,007 2,338,755 10,982,893,287 10,507,525,139 18,850,960 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 119 As of December 31, 2003 ThCh$ 2004 ThCh$ 2004 ThUS$ 319,960,476 191,923,129 169,837,388 106,940,945 72,718,823 107,084,047 21,969,710 3,237,512 26,749,661 3,399,501 220,830,333 253,002,503 21,596,628 45,014,408 31,517,000 55,046,830 65,295,025 49,036,057 12,274,758 66,994,856 13,409,165 38,606,503 81,508,675 44,333,117 49,749,518 54,418,780 6,504,696 41,180,674 344,318 191,857 192,113 47,990 6,099 453,898 24,057 69,262 146,230 79,535 89,253 97,630 11,670 73,880 1,155,329,804 1,018,810,914 1,827,792 854,742,232 626,112,271 2,356,777,340 2,493,500,109 148,976,745 143,254,068 27,472,799 50,583,709 1,123,273 4,473,448 257,004 90,749 86,428 - - 325,352,408 311,025,273 7,194,942 63,535,888 61,845,032 116,143,763 557,993 113,986 208,367 3,782,447,926 3,804,155,081 6,824,820 3,433,013,869 3,125,006,002 5,606,398 2,283,404,124 2,283,404,124 4,096,527 163,306,446 162,725,821 (26,313,477) (122,588,994) 180,417,144 194,378,259 12,779,560 (1,492,109) 44,307,596 (2,673,664) 291,937 (219,930) 348,723 79,490 (4,797) LIABILITIES AND SHAREHOLDERS´EQUITY CURRENT LIABILITIES: 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 long-term notes payable Dividends payable Accounts payable Short-term notes payable Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income taxes payable Deferred income Other current liabilities Total current liabilities LONG-TERM LIABILITIES: Due to banks and financial institutions Bonds payable Long-term notes payable Accounts payable Amounts payable to related companies Accrued expenses Deferred income taxes Other long-term liabilities Total long-term liabilities MINORITY INTEREST SHAREHOLDERS´ EQUITY: Paid-in capital, no par value Additional paid-in capital Other reserves Retained earnings Net income (loss) for the year Deficit of subsidiaries in development stage Total shareholders´ equity 2,612,101,688 2,559,553,142 4,591,950 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 10,982,893,287 10,507,525,139 18,850,960 The accompanying notes are an integral part of these consolidated financial statements. 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 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 120 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) OPERATING INCOME: SALES COST OF SALES GROSS PROFIT As of December 31, 2003 ThCh$ 2004 ThCh$ 2004 ThUS$ 2,418,451,270 2,708,925,344 (1,695,212,019) (1,898,087,991) 4,859,930 (3,405,253) 723,239,251 810,837,353 1,454,677 ADMINISTRATIVE AND SELLING EXPENSES (173,741,457) (176,635,722) (316,892) OPERATING INCOME 549,497,794 634,201,631 1,137,785 NON-OPERATING INCOME AND EXPENSE: Interest income Equity in income of related companies Other non-operating income Equity in loss of related companies Amortization of goodwill Interest expense Other non-operating expenses Price-level restatement, net Exchange difference, net 68,916,018 18,198,366 73,635,633 31,146,566 195,206,651 133,632,882 (243,650) (683) (54,558,943) (53,201,320) (430,943,444) (360,140,223) (252,038,400) (207,355,499) (4,611,876) (6,205,662) (776,878) 14,406,781 132,106 55,878 239,743 (1) (95,445) (646,107) (372,005) (1,394) 25,846 NON-OPERATING EXPENSE, NET (466,280,940) (368,652,741) (661,379) INCOME (LOSS) BEFORE INCOME TAXES 83,216,854 265,548,890 476,406 INCOME TAXES (42,609,984) (137,241,207) (246,217) INCOME (LOSS) BEFORE MINORITY INTEREST AND AMORTIZATION OF NEGATIVE GOODWILL 40,606,870 128,307,683 230,189 MINORITY INTEREST (80,282,913) (101,106,989) (181,390) INCOME (LOSS) BEFORE AMORTIZATION OF NEGATIVE GOODWILL (39,676,043) 27,200,694 48,799 AMORTIZATION OF NEGATIVE GOODWIL 52,455,603 17,106,902 30,691 NET INCOME (LOSS) FOR THE YEAR 12,779,560 44,307,596 79,490 The accompanying notes are an integral part of these consolidated financial statements A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) 121 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 charges to income which do not represent cash flows Changes in assets which affect operating cash flows: Decrease (increase) in trade receivables Decrease (increase) in inventory Decrease (increase) in other assets Changes in liabilities which affect operating cash flows: Increase (decrease) in acounts payable associated with operating results Increase (decrease) in interest payable Increase (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 2003 ThCh$ 12,779,560 As of December 31, 2004 ThCh$ 44,307,596 2004 ThUS$ 79,490 6,410,580 (91,517,236) 409,474 (6,613,618) - (227,863) (11,865) - (409) 406,326,019 8,798,057 55,762,447 (18,198,366) 243,650 54,558,943 (52,455,603) 4,611,876 6,205,662 (30,521,567) 157,087,979 379,491,166 6,801,368 38,380,540 (31,146,566) 683 53,201,320 (17,106,902) 776,878 (14,406,781) (15,464,081) 111,142,000 (86,517,194) 10,631,639 19,852,923 (24,173,451) (6,983,775) (7,544,309) 32,552,808 (11,368,109) (42,043,955) 40,178,565 24,767,831 80,282,913 (9,452,542) 46,422,045 38,053,662 (65,352,965) (3,205,890) 101,106,989 680,824 12,202 68,856 (55,878) 1 95,445 (30,691) 1,394 (25,846) (27,743) 199,394 (43,368) (12,529) (13,535) (16,958) 83,283 68,270 (117,246) (5,752) 181,390 Net cash flows provided by operating activities 588,838,896 618,005,504 1,108,729 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 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 122 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 , C O N T I N U E D ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of shares to minority shareholders Proceeds from the issuance 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 2003 ThCh$ As of December 31, 2004 ThCh$ 2004 ThUS$ 560,126,472 1,048,163,788 848,824,902 24,639,020 (24,632,422) (82,815,176) (2,181,273,813) (499,247,807) (4,579,223) (11,102,445) (5,823,428) (118,931,382) - 827,706,442 328,720,066 22,781,843 (21,172,115) (97,013,165) (1,191,304,739) (22,110,493) - - (2,363,467) (34,368,618) - 1,484,942 589,738 40,872 (37,984) (174,046) (2,137,253) (39,667) - - (4,240) (61,659) Net cash used in financing activities (446,651,514) (189,124,246) (339,297) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Sales of investment in related companies Other loans received from related companies Other receipts from investments Additions to property, plant and equipment Long-term investments Other loans granted to related companies Other investment disbursements 164,779,451 124,873,051 25,596,801 51,033,045 (265,255,289) (3,061,889) (320,222) (7,060,165) 15,537,528 2,557,742 15,294,722 40,574,360 (265,934,353) (343,959) - (1,591,615) 27,875 4,589 27,439 72,792 (477,098) (617) - (2,855) Net cash provided by (used in) investing activities 90,584,783 (193,905,575) (347,875) POSITIVE NET CASH FLOW FOR THE PERIOD 232,772,165 234,975,683 421,557 EFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (122,485,005) (27,014,194) (48,465) NET INCREASE IN CASH AND CASH EQUIVALENTS 110,287,160 207,961,489 373,092 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 228,988,688 339,275,848 608,676 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 339,275,848 547,237,337 981,768 The accompanying notes are an integral part of these consolidated financial statements A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 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 ( E x p r e s s e d i n t h o u s a n d s o f h i s t o r i c a l C h i l e a n p e s o s , e x c e p t a s s t a t e d ) 123 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 Paid-in capital ThCh$ Additional paid-in capital ThCh$ Deficit of Net income Other reserves ThCh$ Retained earnings ThCh$ subsidiaries in development stage ThCh$ (loss) for the year ThCh$ Total ThCh$ 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) - - - - - (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 As of December 31, 2003 (1) 2,283,404,124 163,306,446 (26,313,477) 180,417,144 (1,492,109) 12,779,560 2,612,101,688 As of January 1, 2004 Capital increase Transfer of prior year income to retained earnings Changes in equity of affiliates Cumulative translation adjustment Reserve Technical Bulletin No. 72 Price-level restatement of capital Net income for the year 2,227,711,340 159,323,362 (25,671,685) 176,016,726 (1,455,716) 12,467,863 2,548,391,890 (563,714) - - - - - - - - (4,435,524) (103,832,123) 11,992,130 - - - (563,714) 13,629,822 (1,161,959) (12,467,863) - - - - - - - - - - - (4,435,524) (103,832,123) 11,992,130 63,692,887 55,692,784 3,966,173 (641,792) 4,731,711 (55,989) - - - - - 44,307,596 44,307,596 As of December 31, 2004 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) 44,307,596 2,559,553,142 As of December 31, 2004 (2) 4,096,527 291,937 (219,930) 348,723 (4,797) 79,490 4,591,950 (1) Restated in thousands of constant Chilean pesos as of December 31, 2004. (2) Restated in thousands of constant US$ as of December 31, 2004 The accompanying notes are an integral part of these consolidated financial statements 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 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 124 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s o f D e c e m b e r 31, 2 0 0 4 , e x c e p t a s s t a t e d ) A s o f a n d f o r t h e y e a r s e n d e d D e c e m b e r 31, 2 0 0 3 a n d 2 0 0 4 N OTE 1. D ESCRIP TI O N O F BUSI N ESS Enersis S.A. (the “Company”) is registered in the Securities Regis ter 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. N OTE 2. SUM M ARY O F SI G N IFIC ANT ACCO U NTI N G P O LICIES a) General (i) 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 amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. In certain cases generally accepted accounting principles in Chile 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. (ii) Reclassifications - For purposes of comparison, the following reclassifications were made in the 2003 financial statements: From 2003: Balance sheet reclassifications Charge ThCh$ To Credit ThCh$ Deferred income taxes liabilities long-term 18,172,355 Deferred income taxes assets short-term (18,172,355) From Other non-operating income Other non-operating expenses Statement of operations reclassifications Credit ThCh$ To 7,309,555 Operating Income (2,186,889) Operating Expenses Charge ThCh$ (7,309,555) 2,186,889 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 125 (iii) 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, provided there are no substantive minority participating rights that prevent control, as detailed as follows: 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. (4) Elesur S.A. (4) Enersis de Argentina S.A. (3) Enersis Internacional Ltda. Inversiones Distrilima S.A. Empresa Distribuidora Sur S.A. (Edesur) Luz de Bogotá S.A. (5) Codensa S.A. (5) Cerj Investluz (1) Percentage participation in voting rights as of December 31, 2003 2004 Total 98.24 Direct 98.24 - - Indirect - - 0.01 0.00 0.07 - - - - 39.75 49.07 Total 98.24 - 100.00 100.00 100.00 59.98 100.00 - 100.00 55.68 65.09 99.99 100.00 99.93 59.98 100.00 - 100.00 15.93 16.02 - - - 12.47 35.13 15.61 9.19 45.29 39.52 21.66 80.41 55.13 100.00 100.00 100.62 59.98 - - 100.00 55.68 65.09 44.66 - 71.81 52.00 Enersis Energía de Colombia S.A. (3) - - - - (1) Investluz is Parent Company of Companhia Energética do Céará S.A. Coelce. 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. (3) Enersis de Argentina S.A. and Enersis Energía de Colombia S.A. have been dissolved during 2003. (4) On May 27, 2004, 99.9989% of Elesur S.A. was purchased, therefore, as from that date if is consolidated into Enersis S.A. financial statements. (5) On July 9, 2004 the subsidiary Luz de Bogotá S.A., which had investment in Codensa, was liquidated. As a result of the liquidation, the Enersis and Chilectra agencies that owned Luz de Bogotá S.A. shares have direct investment in Codensa S.A. Codensa S.A. is consolidated because of the majority presence on the board of directors, obtained through the shareholders’ agreement of January 27, 2004, between Endesa Internacional and subsidiaries of Enersis S.A. 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 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 126 (iv) Consolidated subsidiaries of Endesa Chile S.A. area detailed as follows: Company name Enigesa S.A. Ingendesa S.A. Pehuenche S.A. Endesa Argentina S.A. (5) Endesa-Chile Internacional Pangue S.A. Hidroinvest S.A. Infraestructura 2000 S.A. (1) Hidroeléctrica El Chocón S.A. Central Costanera S.A. Endesa Brasil Participacoes Ltda. Túnel El Melón S.A. Soc. Concesionaria Autopista del Sol S.A. (1) Inecsa 2000 S.A. (1) Soc. Concesionaria Autopista Los Libertadores S.A. (1) Compañía Eléctrica Cono Sur S.A. Central Hidroeléctrica Betania S.A. Endesa de Colombia S.A. (4) Lajas Inversora S.A. Centrais Electricas Cachoeira Dourada S.A. Capital de Energía S.A. Emgesa S.A (2) Edegel S.A. Generandes Perú S.A. Compañía Eléctrica San Isidro S.A. (3) Compañía Eléctrica Tarapacá S.A. Inversiones Endesa Norte S.A. Ingendesa Do Brasil Limitada Percentage participation in voting rights as of December 31, 2003 2004 Total % 100.00 97.64 92.65 99.99 100.00 94.99 69.93 - 65.19 64.26 100.00 99.95 - - - 100.00 85.62 100.00 100.00 99.61 50.90 48.48 63.56 59.63 100.00 100.00 100.00 100.00 Direct % 99.51 96.39 92.95 97.99 100.00 94.97 - - - 12.33 5.00 99.95 - - - 100.00 0.44 - 100.00 - 0.05 - - - 100.00 100.00 99.91 - Indirect % 0.49 1.25 - 2.00 Total % 100.00 97.64 92.95 99.99 - 100.00 0.02 69.93 94.99 69.93 - - 65.19 51.93 95.00 - - - - - 85.18 - - 99.61 50.95 51.32 63.56 59.63 - - 0.09 100.00 65.19 64.26 100.00 99.95 - - - 100.00 85.62 - 100.00 99.61 51.00 51.32 63.56 59.63 100.00 100.00 100.00 100.00 1. On June 23, 2003 Infraestructura 2000 Holding and its consolidated subsidiaries was sold, and a result, these companies ceased to be consolidated in our financial statements Chile-from January 1, 2003 and were treated as equity - method investees until their sale. On June 23, 2003 these companies were sold as part of the sale of Infraestructura 2000. Endesa-Chile exercises control over this company under an agreement with other shareholders. Endesa-Chile directly owns all of shares A, which compose 50% of share capital of this company. Only shares A have voting rights - other shareholders do not have voting rights. 2. 3. 4. On December 17, 2004, the Colombian subsidiary Endesa de Colombia S.A., which had part of the investment in Central Hidroeléctrica Betania S.A. (8.91%), was sold off; as a result of the sale, Endesa Matriz and Compañía Eléctrica Cono Sur S.A., which held Endesa shares in Colombia S.A., now direct ownership in Central Hidroeléctrica Betania S.A. 5. On November 17, 2004, Endesa sold 492,920 shares of Endesa Argentina to Endesa Inversiones Generales S.A., equivalent to 2% of its ownership of such Company. b) Years covered c) Constant currency restatement These financial statements reflect the Company’s financial position as of December 31, 2003 and 2004, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years ended December 31, 2003 and 2004. The cumulative inflation rate in Chile as measured by the Chilean Consumer Price Index (“CPI”) for the two-year ended December 31, 2004 was approximately 3.52%. Chilean GAAP requires that the financial statements be restated to reflect the full effects of gain or 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 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 127 that enables calculation of net inflation gains or losses caused by monetary assets and liabilities exposed to changes in the purchasing power of local currency. The model prescribes that the historical cost of all non-monetary accounts be restated for general price-level changes between the date of origin of each item and the year-end. The financial statements of the Company have been price- level restated in order to reflect the effects of the changes in the purchasing power of the Chilean currency during each year. All non-monetary assets and liabilities, all equity accounts and income statement accounts have been restated to reflect the changes in the CPI from the date they were acquired or incurred to year-end (see also Note 24). The purchasing power gain or loss included in net income reflects the effects of Chilean inflation on the monetary assets and liabilities held by the Company. The restatements were calculated using the official consumer price index of the National Institute of Statistics and based on the “prior month rule,” in which the inflation adjustments are based on the CPI at the close of the month preceding the close of the respective 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, 2003 November 30, 2004 Change over Previous November 30, 1.0% 2.5% Index 114.44 117.28 By way of comparison, the actual values of the Chilean consumer price indices as of the balance sheet dates are as follows: December 31, 2003 December 31, 2004 Change over Previous December 31, 1.1% 2.4% Index 114.07 116.84 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 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, 2003 December 31, 2004 Comparative financial statements Ch$ 16,920.00 17,317.05 For comparative purposes, the 2003 consolidated financial statements and the amounts disclosed in the related Notes have been restated in terms of Chilean pesos of December 31, 2004, purchasing power. This updating does not change the prior years’ statements or information in any way except to update the amounts to constant Chilean pesos of similar purchasing power. Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of Chilean pesos into US dollars are included solely for the convenience of the reader, using the observed exchange rate reported by the Chilean Central Bank as of December 31, 2004 of Ch$557.4 to US$1.00. The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 128 d) Assets and liabilities in foreign currencies g) Inventories 8,408,776.27 7,874,799.07 h) Property, plant and equipment Assets and liabilities denominated in foreign currencies are detailed in Note 31. These amounts have been stated at the observed exchange rates reported by the Central Bank of Chile as of each December 31, as follows: Currency United States dollar British pound sterling Colombian peso New Peruvian sol Brazilian real Japanese yen Euro Pool Unit (IBRD)(1) Unidad de Fomento (UF) Unit of Account (IDB) (1) Symbol used US$ £ $Col Soles Rs ¥ € UP UF UC Argentine peso $Arg 2003 Ch$ 593.80 1,056.21 0.21 171.62 205.52 5.55 744.95 2004 Ch$ 557.40 1,073.37 0.23 169.84 209.99 5.41 760.13 16,920.00 17,317.05 970.23 200.61 899.42 187.65 (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. 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). f) Allowance for doubtful accounts The estimates for the allowance for doubtful accounts have been made considerating the aging and nature of the accounts receirables. 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). The allowance for doubtful accounts amounted ThCh$106,994,829 and ThCh$104,345,683 for the years ended December 31, 2003 and 2004, respectively. In addition, the total sum owed by companies that have gone into bankruptcy amounting to ThCh$908,570 in 2004 and ThCh$842,006 in 2003, is included in the bad debt allowance estimation. Inventory of materials in transit, and operation and maintenance materials on hand, 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. 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 generate 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. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 129 i) Depreciation Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets. The table below provides the useful life range for our most significant fixed assets classes. Table Distribution and transmission lines network Substations Public lighting Generator and turbines Combined cycle j) Leased assets Useful life in years 20 – 50 20 – 40 20 – 40 20 – 40 20 – 40 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. 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”. Investments in related companies over which the Company has significant influence are included in Other assets and are recorded using the equity method. Accordingly, the Company’s proportional share in net income (or loss) of each investee is recognized in the non-operating income and expense classification in the consolidated statements of income an accrual basis, after eliminating any unrealized profits from transactions with the related companies. In accordance with Chilean GAAP, the Company has evaluated the recoverability of its foreign investments as required by Technical Bulletins No. 33 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 assets contributed by the state of Chile upon incorporation of the Company, and rights for the use of telephone lines and are amortized in accordance with Technical Bulletin No.55 of the Chilean Association of Accountants. n) Severance indemnities 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 6.5% (9.5% in 2003) and assuming an average employment span which varies based upon years of service with the Company. o) Revenue recognition 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). 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. Investments in foreign affiliates are recorded in accordance with Technical Bulletin No. 64 of the Chilean Association of Accountants. 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. Under Technical Bulletin No. 64 of the Chilean Association of Accountants, investments in foreign subsidiaries are price-level 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 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 130 p) Cost of sales and Administrative and selling expenses For classification purposes, cash flows from operations include collections from clients and payments to suppliers, payroll and taxes. The cost of sales line item includes: purchased energy and power, materials, fuel, tolls and energy transportation cost, direct production salaries, productive assets depreciation, amortization, and maintenance and operation cost. The administrative and selling expense line item includes: general and administrative, materials and office supplies, overhead salaries, bad debt expense, non-productive assets’ amortization and depreciation. q) Income tax and deferred income taxes At December 31, 2003 and 2004, the Company recorded current tax expense according to the tax laws and regulations in each country of ThCh$77,736,155, ThCh$103,272,006 and ThCh$90,711,798, respectively and, additionally, it recorded in the year’s income a deferred tax benefit of ThCh$60,662,022 in 2003 and deferred tax expense of ThCh$46,529,409 in 2004. 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. r) Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on an accrual basis. s) 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. u) Financial derivative contracts As of December 31, 2003 and 2004 the Company and its subsidiaries have forward contracts, currency swaps, and interest rate swaps and collars with several financial institutions, to hedge against mainly foreign currency and interest risk exposures, 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 settlement if the instrument qualifies as a hedge which are included in earnings as “Other non-operating income and expense”. v) 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, not to exceed 20 years. As of December 31, 2003 and 2004 the Company evaluated the recoverability of its goodwill and negative goodwill value arising from investments abroad and under the guidance 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). w) 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. t) Statements of cash flows x) Bonds 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. 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. y) Investments in other companies Investments in other companies are presented at acquisition cost adjusted for price-level restatement, as they do not trade in an organized market. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S z) Research and development costs N OTE 3. CHAN GE I N ACCO U NTI N G 131 PRI NCIPLES • • As of January 1, 2004, the Superintendency of Securities and Insurance, through Circular Letter 1697, has made effective the adoption of Technical Bulletin 72 on Business Combinations issued by the Accountants Association of Chile. These regulations have been applied by the Corporation and pertain to the nature of permanent investments and financial statement consolidation. Regarding indemnity for years of service, the Corporation modified the discount rate from 9.5% in 2003 to 6.5% in 2004 and its workers’ estimated service lives, which are the assumptions used to assess the said liabilities. These changes resulted in the acknowledgment of a larger net charge of ThCh$22,060 to income during the current fiscal year. In addition, in the provision for post-retirement benefits, the discount rate was also modified from 9.5% in 2003 to 6.5% in 2004, which resulted in a charge to income of ThCh$3,411,293. Costs incurred by the Company in research and development relate mainly to water-level studies, hydroelectric research, and seismic-activity surveys which are expensed as incurred. Costs incurred in performing studies related to specific construction projects are capitalized. aa) 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 are deducted from the share premium account. A breakdown of the costs is shown in Note 26. ab) Litigation and other legal action As of December 31, 2004, the Company has established accruals for probable losses in the aggregate amount of ThCh$66,544,240, including accruals Endesa-Chile has established in the amount of ThCh$17,199,250. See Note 29 for detail of claims to which such accruals relate to. The Company has not recognized any assets for expected recoveries, through insurance or from others, related to litigation and other legal actions, in the periods presented. The Company records such recoveries only in the case that it is virtually certain such recoveries will be realized. In the case that the Company does record expected recoveries, the Company’s policy is to record such amounts as an asset in our consolidated balance sheet, unless a right of offset clearly exists. 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 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 132 N OTE 4. TIME D EP OSITS Time deposits as of each year end are as follows: Financial Institution AVvillas Bancafe Banco Bilbao Vizcaya Banco Colpatria Banco Continental Banco Crédito Banco de Bogotá Banco de Chile Banco de Chile N.Y. Banco de Occidente Banco do Brasil Banco do Estado do Ceará Banco Frances Banco Holandes Banco Itau Banco Interbank Banco Lloyds Banco Nationale de Paris Banco Pactual Banco Real Banco Rio de la Plata Banco Safra Banco Santander Banco Santander Santiago Banco Santos Banco Sudameris Banco Tequendama Banco Unión Banco Votorantim Bancolombia Bank Boston Bank of America Bradesco BTM CDT Citibank N.Y. Citiliquit Corficol S.A. Corficolombiana Corfinsura Corfivalle Corporacion las Villas Encargo Fiduciario Banco Santander FAM Fondo Ganadero Fiduciaria Banco de Bogotá Fiduciaria Banco Colpatria Fiduciaria Bancolombia Fiduciaria Helm Trust Fiducolombia Fiduoccidente Fiduvalle Granahorrar HSBC - Bamerindus Interbolsa S.A Merril lynch Panamericano Porvenir Pruential Securiti Serfinco Ford Motor Suvalor Otros Total 2003 Annual Rate % Scheduled Maturity - - 0.97% 9.35% 1.48% - - 05-01-04 02-01-04 06-01-04 - - 10.50% 02-02-04 - - - - - - 1.37% 1.37% 2.50% 3.75% 1.44% 0.70% 02-01-04 02-01-04 20-01-04 28-01-04 02-01-04 02-01-04 - - 1.44% 1.39% 0.00% 1.59% 16.03% 1.51% 02-01-04 15-01-04 - 28-01-04 02-01-04 02-01-04 - - 1.39% 15-01-04 - - 8.50% 9.75% 1.39% 1.00% 0.80% 0.56% 1.38% 0.60% 02-01-04 01-03-04 15-01-04 05-01-04 02-01-04 05-01-04 15-01-04 02-01-04 - - 0.53% 0.95% 9.66% 05-01-04 02-01-04 02-01-04 - - 1.41% 1.70% 9.95% 6.51% - - 7.71% 7.37% 02-01-04 02-01-04 01-03-04 02-01-04 - - 02-01-04 02-01-04 - - 8.14% 02-01-04 - - 7.08% 8.90% 1.39% 9.68% 0.60% 02-01-04 02-01-04 15-01-04 02-01-04 05-01-04 - - 3.22% 0.20% 8.05% 02-01-04 30-01-04 02-01-04 - - 9.10% 0.00% 02-01-04 02-01-04 2004 As of December 31, Annual Rate % 8.85% 7.79% 2.41% 8.15% 2.35% 5.43% 2.18% 1.85% 1.85% 1.80% 3.06% 1.47% 4.32% 1.46% 8.53% 2.16% 0.99% 3.54% 6.33% 1.20% 8.54% 9.22% 8.87% 1.47% 2.39% 2.95% 1.63% 7.07% 7.90% 2.93% 6.22% 9.03% 4.22% 8.38% 9.00% 8.43% 5.74% 6.73% 6.61% 6.74% 7.17% 6.52% 7.44% Scheduled Maturity 01-02-05 02-01-05 02-01-05 02-01-05 02-01-05 02-01-05 15-03-05 02-01-05 02-01-05 01-01-05 02-01-05 04-01-05 05-01-05 04-01-05 03-01-05 04-01-05 11-01-05 15-01-05 02-01-05 02-01-05 03-01-05 03-01-05 01-02-05 04-01-05 02-01-05 02-01-05 02-01-05 02-01-05 02-01-05 02-01-05 03-01-05 15-03-05 02-01-05 02-01-05 02-01-05 02-01-05 03-01-05 03-01-05 03-01-05 03-01-05 02-01-05 03-01-05 02-01-05 - - 1.50% 7.98% 2.08% 18.65% 2.24% 7.15% 2.26% 8.16% 1.45% 02-01-05 02-01-05 02-01-05 01-01-05 02-01-05 02-01-05 02-01-05 02-01-05 04-01-05 2003 ThCh$ - - 70,181,356 8,665,882 2,157,070 - 207,091 - - - 3,555,810 3,095,085 285,784 207,022 6,394 1,334,459 - 414,916 2,765,456 389,437 2,542,817 2,726,310 5,652,277 - 883,503 - 770,608 10,569,470 1,006,218 1,278,155 451,474 16,855,765 877,332 668,294 - 44,702,765 3,154,884 7,098,131 - 2,018,080 4,626,408 942,035 515,610 - - 1,689 5,448,016 - 1,123,055 - 1,765,894 826,413 18,503,537 10,536,885 6,143,374 - 15,279,260 1,055,017 90,591 - 1,275,652 5,690 2004 ThCh$ 11,150,382 10,456,693 87,359,136 18,833,799 3,974,531 6,651,891 16,649,142 3,605,027 2,669,945 4,376,923 969,133 2,033,720 544,812 - 89 - 4,198,449 3,971,546 - 82,545 2,572,288 - 14,317,288 91,074 - 3,638,640 4,409,737 2,133,337 3,760,980 38,144,067 456,676 8,189,878 3,411,044 - 806,955 75,880,376 435,601 - 8,325,719 25,566,873 13,251,647 - 1,566,442 1,442,306 153 187 49 70 4,116,116 81 8,285,231 - 3,770,473 6,436,913 4,231,326 107,475 439,323 - 80,741 5,590,056 29,273,086 2,483,888 262,660,971 450,743,859 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 133 N OTE 5. ACCO U NTS, N OTES AN D OTH ER RECEIVABLES a) Current accounts, notes and other receivables and their related allowances for doubtful accounts as of each December 31, are as follows: As of December 31, Account Under 90 days 91 days to 1 year 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ Sub total 2004 ThCh$ Current Long term 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ Account receivable 509,056,859 540,343,007 63,603,984 80,151,615 620,494,622 572,660,843 528,740,129 Allowance for doubtful accounts (33,854,656) (32,358,593) (59,956,562) (59,395,900) (91,754,493) (93,811,218) Notes receivables 8,180,871 2,865,834 1,181,130 696,361 3,562,195 9,362,001 2,828,014 Allowance for doubtful accounts (119,253) (131,782) (671,056) (602,399) (734,181) (790,309) - - - - Other receivables 53,789,172 60,662,368 51,543,183 12,152,586 72,814,954 105,332,355 63,814,202 134,743,490 128,766,346 Allowance for doubtful accounts (2,848,919) (1,386,054) (5,934,313) (7,614,698) (9,000,752) (8,783,232) (3,610,070) (2,856,257) Total 583,970,440 595,382,345 131,133,420 125,910,089 b) Current and long-term accounts receivable per country as of each December 31, are as follows: Bad debt write-offs of ThCh$46,785,486 and ThCh$20,647,225 were recorded for the years ended December 31, 2003 and 2004, respectively. As of December 31, d) Amounts of unbilled energy sold are as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ Unbilled energy sold 160,391,143 177,603,778 Country 2003 2004 Chile Perú Argentina Colombia Brazil Panamá ThCh$ % ThCh$ % 174,001,542 24.33% 155,832,458 21.60% 46,424,406 48,160,770 6.49% 6.73% 51,255,755 7.11% 58,060,262 8.05% 113,317,251 15.85% 128,009,533 17.75% 332,896,968 46.55% 323,506,255 44.85% 302,923 0.04% 4,628,171 0.64% Total 715,103,860 100.00% 721,292,434 100.00% c) Changes in provision for accounts receivables are as follows: Year ended December 31, 2003 ThCh$ 2004 ThCh$ Balance at beginning of period 119,415,603 106,994,829 Additions charged to costs and expenses 37,639,977 16,262,434 Deductions Other (46,785,486) (20,647,225) (3,275,265) 1,735,645 Balance at end of period 106,994,829 104,345,683 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 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 134 N OTE 6. TR ANSAC TI O NS WITH REL ATED COMPAN IES The balances of accounts receivable and payable with related companies are as follows at December 31, 2003 and 2004: a) Notes and accounts receivable due from related companies: 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 Consorcio Ingendesa - Minmetal Ltda. Gas Atacama Generación Ltda. Gasoducto Atacama Chile Gasoducto Tal Tal Ltda. Gas Atacama S.A. Sociedad Consorcio Ara Ltda. 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 2003 ThCh$ 592,954 1,952,594 148,215 2,736,733 5,185,378 962 6,146 27,996 35,294 33,242 - 1,311,402 96,106 38,885 - 30,592 126,609 - 2,681,081 - 463,413 2,050 90,728 1,610,360 2,023 313,865 2004 ThCh$ - 106,087,173 34,419 1,687,332 3,311,018 - - - - 52,796 543,797 352,336 63,562 58,960 15,715 27,967 193,193 75,087 - 13,425 201,639 2,000 82,739 1,273,859 - 2003 ThCh$ - 131,389,523 - 159,325 - - - - - - - 2004 ThCh$ - - - 38 - - - - - - - 173,476 122,111 - - - - - - - - - - - - - - - 30,000 - - - - - - - - - - 308,746 609,105 304,097 Total 17,486,628 114,385,763 132,331,429 456,246 b) Notes and accounts payable due to related companies: 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 Sacme Smartcom S.A. Transmisora Eléctrica de Quillota Ltda. As of December 31, Short-term 2003 ThCh$ 6 21,464,496 1,033,586 3,274,017 584,044 199,325 136,489 2,930,452 394,992 1,230,151 98,284 115,123 32,644 23,391 2004 ThCh$ - 8,864,648 178,592 14,436,127 239,536 207,713 - - 476,526 56,725,083 - 107,332 247,699 25,419 Long-term 2003 ThCh$ 2004 ThCh$ - - - - - - - 86,428 - - - - - - Total 31,517,000 81,508,675 86,428 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S - - - - - - - - - - - - - - - 135 c) The most significant transactions and their effects in income (expense) for each year ended December 31 are as follows: Company Relationship Nature of transaction Aguas Santiago Poniente S.A. Atacama Finance Co. CGTF Fortaleza Cía. Interconexión Energética S.A. Consorcio ARA-Ingendesa Consorcio Ingendesa Minmetal Ltda. Com. de Energía del Mercosur S.A. Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Com. Transmisión del Mercosur S.A. Empresa Eléctrica de Bogotá S.A. Elesur S.A. Affiliate Affiliate Parent company Empresa Eléctrica Piura S.A. Member of Controling Group Electrogas S.A. Endesa España Endesa Internacional S.A. Endesa Servicios Empresa Propietaria de la Red Etevensa Fundación Endesa Gasoducto Atacama Generación Ltda. Gas Atacama S.A. Ingendesa do Brasil Ingendesa Argentina Sacme Smartcom S.A. Affiliate Parent company Parent company Member of Controling Group Affiliate Member of Controling Group Member of Controling Group Affiliate Affiliate Member of Controling Group Member of Controling Group Affiliate Member of Controling Group Soc. de Inv. Chispa Uno S.A. Transmisora Eléctrica de Quillota Ltda. Affiliate Affiliate Interest Services Interest Monetary correction Exchange difference Services Purchase of energy Sale of energy Purchase of energy Interest Services Exchange difference Services 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 Exchange difference Services Interest Services Services Sale of energy Services Services Services Exchange difference Services Services Services Services Interest Services Interest Monetary correction Services 2003 Income (Expense) ThCh$ 22,681 15,538 5,678,768 1,781,235 (29,716,443) 1,172,958 (3,205,624) 21,942,261 (51,820,568) 68,202 56,239 2004 Income (Expense) ThCh$ - - 6,406,649 2,982,447 (10,276,468) 327,731 (86,270,164) 19,198,528 (54,004,303) 7,961 63,218 - 2,129,021 - 20,487,600 (2,178,949) - 2,572,199 61,141 19,487,819 (743,739) - - 18,812 (2,109,564) (2,202,686) (9,499,614) (16,067,616) 36,638 500,996 (4,914,658) 98,805 (2,681,022) - 130,312 (193,724) (125,814) 153,139 2,269,437 131,248 - 80,661 - (25,564) - (316,289) 3,853,485 - 8,731 109,927 25,351 131,501 18,266 (2,166,614) - - - - 125,823 (4,762,242) 125,122 (2,674,409) (27,935) 71,854 (141,997) - - 1,520,132 637,234 34,937 1,727 (127,613) - 7,262 (334,279) 3,721,375 32,300 2,911 81,104 57,305 85,307 (64,154,589) (103,899,411) 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.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. 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 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 136 Detail of the long-term payables / receivables is as follows: Company Type Transmisora Eléctrica de Quillota Ltda. Account receivables Due Date 2006 Capital in original currency 35,389.57 Currency U.F. Interest rate 9.00% N OTE 7. I NVENTO RIES N OTE 8. D EFERRED I NCOME TA XES Inventories include the following items and are presented net of an allowance for obsolescence amounting to ThCh$2,750,729 and ThCh$3,017,626 as of December 31, 2003 and 2004, respectively: As of December 31, 2003 ThCh$ 2004 ThCh$ Real estate under development 16,561,003 15,702,906 Materials in transit 138,683 188,414 Operation and maintenance material 22,602,565 25,375,082 a) Income taxes (recoverable) payable as of each year- end are as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ Income tax provision - current 49,036,057 54,418,780 Recoverable tax credits (62,818,496) (97,637,872) Total (13,782,439) (43,219,092) Fuel Others Total 6,113,564 9,714,913 84 - b) The balance of tax retained losses and the related 45,415,899 50,981,315 tax credits are as follows: Year 2003 2004 Amount of loss ThCh$ 204,685,253 239,949,691 Credit ThCh$ - - c) The net effect of recording the deferred tax expense (benefit) was ThCh$(60,662,022) and ThCh$46,529,409 during the years ended December 31, 2003 and 2004, respectively. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 137 d) In accordance with BT No.60 and 69 of the Chilean Association of Accountants, and Circular No.1,466 of the SVS, the Company and its subsidiaries have recorded consolidated deferred income taxes as of December 31, 2003 and 2004 as follows: As of December 31, 2003 As of December 31, 2004 Asset Liability Asset Description Allowance for doubtful accounts Deferred income Vacation accrual Intangibles Fixed assets depreciation Severance indemnities Other Contingencies Bond discount Cost of studies Finance cost Imputed interest on construction Deferred charges Actuarial deficit (Brazil) Withholdings Obsolescence Materials used Imputed salaries on construction Tax losses Provision real state project Sie2000A project Provision for employee benefits Derivative contracts exchange difference Operating fees Energy in measurers Regulated assets Capitalized expenses Capitalized interest Valuation allowance Provisión de valuación Short-term ThCh$ 9,441,712 1,532,249 789,056 73,815 150 - 2,898,399 8,136,524 - - - - 1,900,849 - - 291,011 - - 30,731,646 - - 1,123,988 - 5,106,050 - - - - (62,409) - Long-term ThCh$ 19,715,261 5,493,647 - - 3,159,481 - 1,000,934 46,100,903 - - - - 2,800,215 12,070,233 - 656,893 - 3,899,439 100,373,330 2,944,849 - 3,236,528 312,837 - - - - - (21,776,753) (2,685,345) Short-term ThCh$ Long-term ThCh$ - - - - - - 12,703 1,540 93,135 364,000,349 1,953,906 5,331,865 - 1,789,264 8,180,400 10,904,732 4,664,007 2,805,349 - 1,249 - 973,913 - - - 183,201 - - - - 13,555,320 637,484 1,449,633 (231,934,818) - - 845,581 - 112,726 - - - 1,799,379 - 5,864 - - - - - - 540 989,222 - 2,798,986 2,282,623 - - (1,630) - Short-term ThCh$ 8,592,885 1,093,988 902,749 - - - 925,843 5,733,922 - - - - 3,209,755 - - 295,228 - - 42,778,937 - - 1,478,806 1,615,743 3,736,278 - - - - - - Long-term ThCh$ 20,367,584 1,376,969 - - 2,893,469 - 897,198 46,244,921 - - - - - 12,028,415 - 647,679 - 3,632,328 81,877,301 2,528,523 - 2,689,410 - - - - - - (17,495,723) (2,935,126) Liability Short-term Long-term ThCh$ ThCh$ - - - - 139,345 - 258,881 - 135,394 - - - 619,552 - - - - - - - - - - - 2,419,644 6,785,601 - - - - - - - - 386,542,008 1,886,652 3,041,781 - 1,701,307 8,107,213 12,982,334 4,293,140 3,384,371 - - - 895,914 - - - 277,684 - - - - 7,873,283 556,006 1,899,692 (215,152,549) - Total 61,963,040 177,302,452 8,939,129 184,497,394 70,364,134 154,752,948 10,358,417 218,288,836 e) Income tax benefit (expense) for the year ended N OTE 9. OTHER CU RRENT ASSE TS December 31, 2003 and 2004 is as follows: Other current assets are as follows: Item As of December 31, 2003 ThCh$ 2004 ThCh$ Current income tax expense: Income tax provision Adjustment for tax expense - prior year (103,270,325) (1,681) (91,392,576) 680,778 Deferred tax expense (benefit): Deferred taxes Benefits for tax losses Amortization of complementary accounts Valuation allowance 52,463,456 29,492,226 (21,254,071) (39,589) (48,266,851) 16,171,969 (14,395,636) (38,891) Total (42,609,984) (137,241,207) Forwards contracts and swap (1) Guaranties and indemnities Deferred expenses Post-retirement benefits Deposits for commitments and guarantees Bond discount Recoverable - taxes Fair value derivatives contracts Reverse repurchase agreements (2) Others Total (1) See detail in Note 29. As of December 31, 2003 2004 ThCh$ ThCh$ 11,196,734 81,507 2,430,634 208,760 6,779,838 2,617,127 886,918 233,837 12,976,213 4,023,170 740,663 926,826 2,413,745 - 159,867 1,206,465 36,371,190 25,585,039 2,281,047 774,602 75,777,002 36,117,180 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 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 138 (2) The detail of reverse repurchase agreements is as follows: Code Date Start End Financial institution Currency Document As of December 31, 2004 CRV CRV CRV CRV CRV CRV CRV CRV CRV VRC VRC VRC VRC VRC VRC VRC VRC VRC VRC 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 29-Dec-04 30-Dec-04 30-Dec-04 30-Dec-04 30-Dec-04 30-Dec-04 30-Dec-04 30-Dec-04 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 3-Jan-05 6-Jan-05 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. Valores Security S.A. C.B. BBVA Banco BHIF Banco Central de Chile BBVA Banco BHIF Banco Central de Chile Scotiabank Banco de Chile Banco Crédito e Inversiones Banco Santander Santiago BBVA Banco BHIF Banco Central de Chile U.F. U.F. U.F. U.F. U.F. U.F. U.F. U.F. U.F. $ $ $ $ $ $ $ $ $ $ D.P.R. D.P.F. CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. BONO D.P.R. CERO D.P.F. CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. B.C.D. Interest rate % 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.37% 0.33% 0.33% 0.33% 0.12% 0.12% 0.12% 0.12% 0.12% 0.12% 0.09% Current amount ThCh$ 1,717,533 202,755 55,192 1,744,373 801,429 2,633,534 5,029,012 1,724,914 683,467 633,722 8,044 6,554,416 2,954 1,014,928 1,609,100 247,911 413,855 70,887 437,013 Nominal ThCh$ 1,717,190 202,710 55,189 1,743,989 801,289 2,633,052 5,027,775 1,724,822 683,315 633,583 8,043 6,552,973 2,954 1,014,887 1,609,036 247,901 413,838 70,885 437,000 Fair value ThCh$ 1,717,190 202,710 55,189 1,743,989 801,289 2,633,052 5,027,775 1,724,822 683,315 633,932 8,048 6,556,578 2,955 1,015,049 1,609,294 247,941 413,904 70,895 437,092 Total 25,585,039 25,580,431 25,585,019 Code Date Start End Financial institution Currency Document As of December 31, 2003 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 23-Dec-03 23-Dec-03 23-Dec-03 23-Dec-03 23-Dec-03 23-Dec-03 23-Dec-03 23-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 30-Dec-03 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 5-Jan-04 2-Jan-04 2-Jan-04 2-Jan-04 2-Jan-04 2-Jan-04 2-Jan-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. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 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. Interest rate % 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% Current amount ThCh$ 42,724 3,841 421,456 206,237 4,741,262 14,196,210 615,915 287,115 56,495 3,536 1,321,736 942,221 934,593 356,103 1,415,315 827,627 212,450 109,303 1,434,904 313,921 2,282 276,947 412,299 4,546,358 313,226 19,404 21,198 405,915 180,590 1,120,153 612,375 17,480 Nominal ThCh$ 42,693 3,838 421,153 206,089 4,737,850 14,185,996 615,473 286,909 56,490 3,536 1,321,622 942,140 934,512 356,073 1,415,192 827,555 212,431 109,293 1,434,779 313,894 2,282 276,928 412,265 4,545,979 313,199 19,402 21,196 405,878 180,574 1,120,051 612,321 17,480 Fair value ThCh$ 42,724 3,841 421,456 206,237 4,741,262 14,196,210 615,915 287,115 56,495 3,536 1,321,736 942,221 934,593 356,103 1,415,315 827,627 212,450 109,303 1,434,904 313,921 2,282 276,947 412,299 4,546,358 313,226 19,404 21,198 405,915 180,590 1,120,153 612,375 17,480 Total 36,371,191 36,355,073 36,371,191 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 139 N OTE 10. PRO PERT Y, PL ANT AN D EQ U IPMENT 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 (1) Furniture and fixtures, tools, and computing equipment Vehicles Equipment in transit Other assets Sub-total Technical appraisal Buildings and infrastructure Machinery and equipment Other assets Total technical appraisal As of December 31, 2003 ThCh$ 118,340,129 2004 ThCh$ 122,606,995 5,863,335,494 4,481,745,419 (39,796,311) 5,643,213,439 4,284,173,352 (62,401,125) Useful life range Years - 20-40 20-50 20-50 10,305,284,602 9,864,985,666 1,806,292,572 1,721,120,263 162,981,726 52,718,519 630,715 78,199,053 14,053,161 6,354,622 41,854,140 180,102,817 44,425,890 28,302,652 84,235,650 11,609,898 5,976,374 44,056,038 356,791,936 398,709,319 4-20 - 4-10 4-10 4-10 4-10 4-10 4-10 515,562,792 119,176,041 219,178 474,816,497 109,165,816 200,725 20-50 4-20 4-10 634,958,011 584,183,038 Total property plant and equipment 13,221,667,250 12,691,605,281 Accumulated depreciation at beginning of year Buildings and infrastructure Machinery and equipment Other assets (3,751,141,037) (582,125,634) (45,503,524) (3,822,180,291) (609,407,810) (48,287,346) Accumulated depreciation at beginning of year (4,378,770,195) (4,479,875,447) Accumulated depreciation at beginning of year technical appraisal Buildings and infrastructure Machinery and equipment Other assets (89,603,788) (47,872,874) (324,851) (96,979,993) (50,160,670) (276,063) Total accumulated depreciation at beginning of year technical appraisal (137,801,513) (147,416,726) Depreciation of the year (406,326,019) (379,491,166) Total accumulated depreciation at end of year (4,922,897,727) (5,006,783,339) Total property, plant and equipment, net 8,298,769,523 7,684,821,942 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 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 140 Depreciation expense of the three years ended December 31, 2004 has been allocated as follows: policies are recorded in prepaid and charged to income open the life of the policy. 2003 ThCh$ 2004 ThCh$ Cost of sales 392,468,621 365,465,613 Administrative and selling expenses 13,857,398 14,025,553 Total 406,326,019 379,491,166 (1) Corresponds to a contract for power transmission lines and installations (Ralco-Charrúa 2X220 KV) between Empresa Nacional de Electricidad S.A. and Huepil S.A. The said contract has a 20-year validity and earns interest at a 6.5% annual rate. As of December 31, 2004, the total leasing obligation, amount to ThCh$24,384,379, which respective parts are presented in other current liabilities and other long-term liabilities. • The Company and its foreign subsidiaries have insurance contracts that include blanket, earthquake, and machinery failure policies up to a MUS$100,000 limit. This coverage includes losses due to business interruption. Premiums prepaid associated with these • At December 31, 2003 and 2004 Enersis S.A. and its local subsidiaries have carried out an analysis of the book values of their property, plant and equipment and of the companies in which it has invested abroad. The analysis consisted of evaluating both the recoverability of property, plant and equipment of these companies, and the recorded goodwill and negative goodwill, in accordance with accounting principles generally accepted in Chile. The property, plant and equipment recoverability analysis, as explained in Note 2h, was carried out considering that when there is evidence that the company’s operations do not have sufficient earnings to recover all costs, including the depreciation of property, plant and equipment taken as a whole, and when the book value of said assets exceeds its realization value, these values must be written down to recoverable amounts, charging non operating income. The results of this analysis determined that no adjustments affecting the Company and its Subsidiaries’ book values of property, plant and equipment were required. N OTE 11. I NVESTMENT I N REL ATED COMPAN IES a) Investments in related companies of December 31, 2003 and 2004 are as follows: Related Companies Number of shares Percentage owned Shareholders’ equity of investee Net income of investees 2003 (6) 2004 (6) 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ Investment book value 2003 ThCh$ 2004 ThCh$ Cía. de Interconexión Energética S.A. (2) 128,270,106 45.00% 45.00% 124,924,385 117,397,915 25,378,061 14,321,278 11,420,128 6,444,575 56,215,972 52,829,062 Atacama Finance Co. (7) Endesa Market Place (4) Sacme Electrogas S.A. Consorcio ARA- Ingendesa Sociedad Consorcio Ingendesa Ara Ltda (1) Consorcio Ingendesa - Minmetal Limited (1) Gas Atacama Generación S.A. (7) Gasoducto Atacama Argentina S.A. (7) Gasoducto Atacama Chile S.A. (7) Inversiones Eléctricas Quillota S.A. Inversiones Electrogas S.A. - - - 0.05% 0.05% 0.05% 608,676 50.00% 425 42.50% Cía. de Energía del Mercosur S.A. (3) 6,305,400 45.00% Transmisora Eléctrica de Quillota Ltda. - 50.00% 3,150,000 - 0.00% 0.00% 0.05% 0.05% 0.05% 50.00% 42.50% 45.00% 50.00% 0.00% 0.00% 60,740,108 54,312,421 3,340,051 (1,313,660) 55,910,966 56,562,027 1,512,741 5,358,497 52,736,881 59,830,121 5,425,624 11,533,433 1,670 756 2,713 (657) 2,679 5,767 30,370 27,956 26,368 27,156 28,281 29,915 22,545,505 26,253,719 6,744,947 7,099,149 3,372,471 3,549,575 11,272,753 13,126,860 19,267,163 18,101,389 6,003,335 4,910,202 2,551,417 2,086,836 8,188,544 7,693,090 7,901,478 8,523,313 1,389,582 1,287,102 625,312 579,196 3,555,666 3,835,491 5,527,265 5,764,453 318,087 257,389 159,044 128,695 2,763,633 2,882,227 - - - - - - - - - - - - - - - - 12,000 50.00% 50.00% 88,275 80,420 14,637 (52) 85 0.02% 0.02% 17,699,641 16,662,557 6,115,066 5,029,745 7,319 1,300 (26) 1,069 44,138 40,210 3,760 3,541 - 50.00% 50.00% - 50.00% 50.00% 50.00% 50.00% - 3,409 10,726 82,174 - - 9,726 80,055 127,379 533,523 103,294 405,602 51,648 202,801 63,689 266,762 - - 4 4,863 40,028 143 - 1,705 1,940 5,363 41,087 1,919 Gas Atacama S.A. 1,147 0.00% 0.00% 169,074,616 167,326,512 395,459 12,487,171 Inversiones Gas Atacama Holding Ltda. (7) - 50.00% 50.00% 169,072,670 167,323,954 (487,299) 12,486,274 (243,650) 6,243,137 84,536,335 83,661,977 Central Geradora Termelectrica Fortaleza S.A. (5) 20,246,908 48.82% 48.82% 34,295,929 55,289,063 - 24,287,590 - 11,857,202 16,743,272 26,992,121 Ingendesa do Brasil Limitada Distrilec Inversora S.A. - 4,416,141 0.00% 0.00% 0.00% 0.00% - 8,900 Aguas Santiago Poniente S.A. (5) 1,031,949 55.00% 55.00% 2,247,406 - - - - 8,900 - - - - - 4,584 - - - - - 4,584 1,236,073 - - - Total 17,954,716 31,145,883 184,716,758 191,465,062 Equity method investee: (1) Related companies of subsidiary Ingendesa Ltda. (2) Related companies of subsidiary Compañía Eléctrica Cono Sur S.A. (3) Related companies of subsidiary Endesa Argentina S.A. (4) Company with negative equity in 2003 and 2004. (5) These subsidiaries were in the development stage for the years shown and accordingly, were not consolidated under Chilean GAAP. (6) The ownership percentage represents the nominal interest held in the related party. (7) See Note 11 (d). A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 141 b) Income and (losses) recognized by Enersis S.A. based on the participation in the related companies as of December 31, 2004, amounted to ThCh$31,146,566 (ThCh$683), ThCh$18,198,366 (ThCh$243,650) in 2003. c) In accordance with Technical Bulletin No.64 of the Chilean Association of Accountants for the years ended December 31, 2003 and 2004, 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, 2004 the corresponding amounts are as follows: Company Edesur S.A. Companhia de Eletricidade do Río de Janeiro 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 d) The investments in related companies made by Enersis S.A. and its affiliates for the years ended December 31, 2003 and 2004, amounted to ThCh$3,061,889 and ThCh$343,959, respectively, which are detailed as follows: Company Central Eléctrica Cachoeira Dourada S.A. Central Costanera S.A. Elesur S.A. As of December 31, 2003 ThCh$ 25,380 3,036,509 2004 ThCh$ - - - 343,959 Total 3,061,889 343,959 Country of origin Argentina Brasil Brasil Colombia Brasil Perú Brasil Argentina Argentina Argentina Investment ThCh$ 180,857,743 259,065,626 27,346,437 332,514,494 333,881,589 165,115,398 52,829,062 167,982,348 3,835,491 92,936,967 Reporting currency US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Liability ThCh$ 134,672,035 206,558,046 14,025,863 254,029,968 326,329,745 97,236,037 40,240,941 77,797,288 2,514,714 56,035,228 1,616,365,155 1,209,439,865 e) Capital increase in Cerj On December 10, 2002, the E x traordinar y General Shareholders’ Meeting of the Company Cerj agreed to an increase in its 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. assigned 100% of the rights of share subscription of the company Cerj and part of the rights of Luz de Río S.A. to Enersis, for no consideration. 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 US$100,000 million approved by the Meeting and increasing the authorized capital of the Company to US$259,085 million. After this capital increase, the percentage of direct and indirect participation held by Enersis S.A. and subsidiaries increased from 61.9521% to 71.8148%. On December 11, 2003, the Compañía de Electricidade do Rio de Janeiro S.A. shareholders extraordinary assembly was held, which approved a capital stock increase of an approximate value of MUS$250,000. 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 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 142 The capital stock increase for the Compañía de Electricidade do Rio de Janeiro S.A. was entered into on February 27, 2004, for MR$710,000 (around MUS$243,000), at an equivalent of R$0.53 per one thousand share lot (1,000 shares). The number of shares issued was 1,339,622,641,509 of which the subsidiary Enersis Internacional S.A., through a inter-company debt equity conversion subscribed to a total of 1,339,620,447,234 shares in two stages: 1,335,849,056,604 on February 27, 2004, and 3,771,390,630 on March 24, 2004. On March 30, 2004, Enersis Internacional S.A. transferred 760,255,861,477 shares to Chilectra S.A. so that the latter could maintain its relative ownership interest in the same proportion as before the increase. h) Group Reorganization 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. On December 29, 2003 our subsidiary, Compañía Eléctrica Cono Sur S.A. transferred to our related party GasAtacama S.A. all our shares held in Atacama Finance for US$4,400,000 as part of a reorganization of our natural gas business holding (Note 23) On December 29, 2003, Compañía Eléctrica Cono Sur S.A. transferred to GasAtacama S.A. its 50% interest in Energex Co. for US$5,000 as part of the above reorganization. (Note 23) With this operation, Enersis S.A. and its subsidiaries direct and indirect ownership interest percentage increased from 71.8148% to 80.4141% in Compañía de Electricidad de Río de Janeiro S.A. i) According to Technical Bulletin 72 of the Accountants Association of Chile A.G., for this transaction carried out in companies of the same group, a reserve of ThCh$11,992,130 has been recorded in equity representing a contribution to capital (see Note 22 f.) f) Sale of Río Maipo The contract between Enersis and Compañía General de Electricidad - Distribución was signed on April 30, 2003 to seel the entire share participation held by Enersis (356.078.645 shares) in the Company Río Maipo. The disposal of Rio Maipo to Company CGE Distribución was approved by the Board of Directors of Enersis on March 28, 2003, with a bid of US$170 million for the shares held by Enersis which was later ratified at an Extraordinary Shareholders Meeting dated March 31, 2003. The effects of the sale of the shares are detailed in Note 23. g) Sale of Infraestructura 2000 S.A. On June 23, 2003, Endesa Chile S.A. sold 330,939,522 shares of the subsidiary Infraestructura 2000 S.A. in the amount of ThCh$40,074,506 and 3,741 shares of Sociedad Concesionaria Autopista del Sol S.A., in the amount of ThCh$41,151 which amounts represent 100% of its participation in these related Companies (Note 23). 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, the predecessor Inmobiliaria Manso de Velasco Ltda. was dissolved, and its partners received rights in the continuing Company. j) Dissolution of Investment Vehicles. During 2003, Companys Enersis Energía de Colombia S.A. and Enersis de Argentina S.A. were dissolved. k) Incorporation of Companies On October 1, 2003 Inversiones Gas Atacama Holding Limitada was incorporated by public deed; Inversiones Endesa Norte S.A. contributed ThCh$700,000 in cash and 99.99% of its ownership rights in Gasoducto Atacama Chile Limitada, Gasoducto Atacama Argentina Limitada and Gas Atacama Generación Limitada, which represent 49.95% of all its rights in the aforementioned affiliates, in return of a 50% interest in the Company. The transaction was recognized at historical carrying, values as a reorganization of the group interest in its natural gas business. l) Purchase of Elesur S.A. On May 27, 2004, Enersis S.A. purchased 49,207,343 shares with no par value from Endesa International S.A., equivalent to 99.9989% of Elesur S.A. partnership assets. The price agreed upon for the transaction was ThCh$55,551,601. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 12. INVESTMENTS IN OTHER COMPAN IES Investments in other companies at December 31, 2003 and 2004 are as follows: 143 Company Electrificadora de la Costa Electrificadora del Caribe Autopista del Río Maipo S.A. CDEC-SIC Ltda. CDEC-SING Ltda. Club de la Banca y Comercio Club Empresarial Cooperativa Eléctrica de Chillán Emgesa S.A. Edegas Distasa S.A. Empresa Eléctrica de Aysen S.A. Empresa Eléctrica de Bogotá S.A. (1) Financiera Eléctrica Nacional S.A. Inmobiliaria España S.A. Inverandes S.A. Menescal Produciones Artisticas Prod. Cinematográfica Saelpa Teleceara Telebras Total (1) See Note 14 (1). N OTE 13. G O O DWILL Number of shares 13,590,296 85,568,116 25 - - 1 1 - 1 1 1 2,516,231 9,293,241 4,072 1 - - - - - - Percentage owned % 0.19% 0.06% As of December 31, 2003 ThCh$ 27,137 1,376,666 2004 ThCh$ 24,852 1,331,547 - - - 23.16% 7.69% 1.00% 1.00% - - 1.00% - - 7.19% 0.10% - - - - - - - 173,229 103,171 1,994 6,447 13,363 - - - 2,047,755 132,805,731 111,723 100 3,541 52,730 25,280 1,980 1,409 44,548 213,764 103,171 2,245 5,486 13,363 - - - 2,047,755 46,053,558 115,694 - - 52,562 25,200 1,974 1,405 178 136,796,804 49,992,754 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, 2003 and 2004, as follows: Chilectra S.A. Codensa S.A. Edegel 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. Inversiones Distrilima S.A. Luz de Bogotá S.A. As of December 31, Amortization Net Balance 2003 ThCh$ (6,434,838) (1,514,390) (34,742) (1,368,842) (191,714) (173,156) (44,472,559) (4,941) (1,270) (362,491) 2004 ThCh$ (6,434,768) (637,605) (31,818) (1,253,592) (191,717) (173,156) (44,472,559) (4,941) (1,164) - 2003 ThCh$ 103,587,929 19,434,925 480,607 18,933,729 2,444,373 3,217,820 646,704,395 74,934 13,976 5,014,460 2004 ThCh$ 97,153,161 12,276,827 408,325 16,086,006 2,252,656 3,044,664 602,231,837 69,992 11,635 - Total (54,558,943) (53,201,320) 799,907,148 733,535,103 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 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 144 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, 2003 and 2004 as follows: Company Central Costanera S.A. Central Hidroeléctrica Betania S.A. Cía. de Eletricidade do Río de Janeiro (*) Edegel S.A. Edelnor S.A. Empresa Eléctrica de Bogotá S.A. Inversiones Distrilima S.A. Elesur S.A. Synapsis Soluciones y Servicios IT Ltda. 2003 ThCh$ 434,671 6,609,649 35,380,018 8,718,901 1,053,773 216,069 26,667 As of December 31, Amortization Net Balance 2004 ThCh$ 2,699,974 5,218,912 2003 ThCh$ (16,952,154) (14,680,338) 2004 ThCh$ (12,824,889) (7,583,899) - - - 7,984,811 965,050 197,877 24,423 (44,711,106) (1,228,652) (3,021,314) (491,129) - - - 15,855 15,855 (130,805) (32,961,832) (160,155) (2,569,614) (425,354) (95,119) (114,952) Total 52,455,603 17,106,902 (81,215,498) (56,735,814) (*) 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. N OTE 14. OTHER ASSE TS Other assets as of each year end are as follows: Bond discount Bond issuance cost Forward contracts and swap Deferred expenses Bank fees and interest expense Investment find wholesale electrical market Post-retirement benefits Security deposits for judicial obligations Recoverable - taxes Reimbursable contributions Investment in Empresa Eléctrica de Bogotá (1) Regulatory assets Fair - value derivative contracts Others As of December 31, 2003 ThCh$ 20,072,691 6,657,377 4,986,444 12,879,804 29,198,128 - 2,131,172 29,538,640 12,761,176 1,315,207 - 43,067,826 16,669,892 5,847,944 2004 ThCh$ 19,358,573 7,492,349 - 6,612,227 15,033,865 7,338,729 1,876,825 35,259,272 26,075,014 1,133,706 42,474,437 46,558,132 5,556,455 7,534,018 Total 185,126,301 222,303,602 The debt refunding plan was completed in May 2003, which meant incurring expenditures required to obtain the loans, which are amortized over the same term as the debt. Disbursements for this item amounted to ThCh$57,503,327 classified in the statements of cash flow under “Disbursements for Financing” within cash flows 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 increases, issuance and placement of bonds and obtaining new loans. As a result of these pre-payments, accelerated amortization of deferred expenses for ThCh$40,072,596 were made and charged to financial expenses. (1) Through a Memorandum of Understanding signed on October 5, 2004, the Corporación Financiera del Valle will stop being shareholder of the Central Hidroeléctrica de Betania S.A. through an asset exchange operation between the Corfivalle Group and the Endesa Group. This operation will be drafted for attestation during 2005 and 2006, when the mandatory legal processes defined by both parties before the handing over of the corresponding assets ownership are executed. With this operation, the Endesa Group will hand over to Corfivalle the Betania S.A. power sub-station and 3.81% of the ownership interest in the Empresa de Eléctrica de Bogotá S.A. in exchange for the ownership interest Corfivalle has in the Central Hidroeléctrica de Betania S.A. (14.3% of the company.) The parties understand that the steps to perfect the above- mentioned Memorandum of Understanding will be gradually executed, and have agreed the economic and political right beneficial interest of the assets that will be exchanged as from January 1, 2004. According to this, the Empresa Eléctrica de Bogotá S.A. 3.81% ownership interest that is subject to this agreement is included under the Others item. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 15. D U E TO BAN KS AN D FI NAN CIAL I NSTITUTI O NS a) Short-term debt due to banks and financial institutions: 145 Financial Institution US$ Euros Foreign currency Other foreign currency 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ Ch$ 2003 ThCh$ 2004 ThCh$ ABN Amro Bank AV Villas Banco Alfa Banco ABC Brasil S.A. Banco BBM Banco Banrisul Banco Bayerische Landes Banco BBVA Banco BBVA Bhif Banco Beal Banco Continental Banco Crédito Perú Banco Crédito e Inversiones Banco Crédito Nacional Banco Credit Swiss First Boston Banco Davivienda Banco de Bogota Banco de Chile Banco de Galicia y Buenos Aires Banco de la Ciudad de Buenos Aires Banco de la Nación Banco de la Provincia de Buenos Aires Banco de Occidente Banco do Brasil Banco CR2 de Investimentos Banco Fibra Banco Ganadero Banco HBSC Banco Hermes Banco Itau Banco Lloyds Banco Merril Lynch Banco Nacional del Lavoro Banco Nationale de Paris Banco Popular Banco Real Banco Río Banco Safra Banco Santander Central Hispano Banco Santander Santiago Banco Tequendama Banco Union Banco Wiese Sudameris Bancolombia Bank Boston Bank of Tokio - Mitsubishi Barings Bndes Bnp Paribas Brandesco Caixa General de Depósitos Citibank Colpatria Compagnie Belge de la Webstlb Conavi Corfinsura Deutsche Bank Electrobras - Brasil Interbank JP Morgan Unibanco Total Total principal 2004 ThCh$ 2003 ThCh$ 6,103,990 - - - - - 701,288 - - 471,721 - - 3 2,496,919 - - - 403,204 - - - - - 5,380,440 - - - 10,177,647 3,372,502 15,244,402 8,105,115 - 2,578,272 - - - 3,754,355 2,068,814 22,801,231 2,108,612 - - - - 5,804,448 16,681,138 3,735,924 - - 9,375,035 - 283,175 - - - - - 117,725 - - - 5,710,588 - - - - - - 31,003 607,566 2,021,133 - 557,957 - - - - 8,678,548 - - 8,327,069 1,301,529 755,385 - - - - - 1,865,149 1,158,976 466,791 - - - - 8,610,036 - - - - - - 8,112,588 13,856,057 - 899,322 - - 3,982 - 2,979 20,009 - - - - - - - - - - 2003 ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,588,066 - - - - - - - - - - - - 14,053,807 - - 6,673,668 - 4,208,267 - 3,637,805 - - 4,246,015 - - - 401,293 - - - - - - 13,693,038 - - - - - - 13,160,679 21,673,832 - 9,506,572 13,043,218 - - - - - - - 3,383,914 - - 3,295,130 3,335,822 - 9,362,360 11,114,034 - - - - - - - - - - 3,131 - - - - - - 1,756,857 - - - - 96,463 - - 1,508,146 - - 16,580,167 8,971,296 - - - - - - - - - - - 4,507,076 - - - - 658,772 - - - 1,487,398 - - 4,479,117 - 46,323 - - 5,491,496 3,098,757 - - - - 10,618,072 10,794,821 - - - - - - - 13,754 - - - 3,272,497 - - - - - 16,682,218 - 782 - - - - 908,779 9,798,002 - - - - - - - - - - - - - 2,676 - - - 2,106,620 17,554,534 - - 1,799,483 1,124,017 1,349,131 14,355,121 17,965,061 - - 14,430 - - - 17,349,476 4,500,851 - 2,911,264 2,060,670 - 5,603 7,401 - - - - - - - - - 8,045 - - - 179 - - - - 6 - - - - - - - - - - - - - - - - - - - - - 2,430,119 - - - - - - - - - - - - - - - - - - - - - 8,353 2,426,485 As of December 31, 2003 2004 ThCh$ ThCh$ 20,157,797 6,673,668 - - - - - - - - 5 - - - 4 - - - - 283,175 - - 4,208,267 3,637,805 - 4,246,015 - - 401,293 117,725 701,288 - 13,693,038 5 8,045 - 471,721 18,871,267 21,673,832 9,506,572 13,043,218 4 182 - 2,496,919 3,383,914 - 3,295,130 3,335,822 9,362,360 11,114,034 39,356 403,210 607,566 - - 2,021,133 - - 3,131 - - 557,957 - - - 1,756,857 - - 5,380,440 - 96,463 - - 1,508,146 - - 8,971,296 25,258,715 - - 10,177,647 - - - 3,372,502 8,327,069 - 15,244,402 1,301,529 12,612,191 - 755,385 - - 658,772 2,578,272 - - 1,487,398 - - 4,479,117 - 46,323 - - 5,491,496 6,853,112 - 1,865,149 2,068,814 - 11,953,797 33,419,303 - 2,893,276 4,538,731 - 1,799,483 - - 1,124,017 - 1,349,131 13,754 - - 14,355,121 - 23,769,509 11,882,533 - - 16,681,138 - - 3,735,924 - 16,682,218 14,430 - 782 - - - 9,375,035 - - 908,779 3,588,066 - 25,462,064 23,654,059 - - 899,322 - - - - - 3,982 - - - 5,655 - - 20,009 2,106,620 17,554,534 - 4,500,851 - 2,911,264 2,060,670 - 5,603 7,401 - 129,477,648 55,274,979 3,588,066 908,779 184,456,413 133,304,524 2,438,349 2,434,847 319,960,476 191,923,129 123,003,765 54,539,235 3,408,662 904,198 175,233,592 129,518,291 2,438,160 2,426,483 304,084,179 187,388,207 Weighted average annual interest rate 8.20% 3.91% 5.00% 3.00% 15.93% 10.88% 3.00% 9.00% 10.40% 8.75% Percentage of debt in foreign currency: Percentage of debt in local currency: As of December 31, 2003 2004 % % 98.73% 99.24% 1.27% 0.76% Total 100.00% 100.00% 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 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 146 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 Banco Beal Banco Colpatria Banco Corfinsura Banco Davivienda Banco de Sabadell Banco do Brasil Banco do Estado do Ceará Banco do Nordeste do Brasil Banco Español de Crédito Banco Estado Banco Europeo de Investimentos Banco HBSC Banco Medio Crédito Banco Nacionale del Lavoro Banco Popular Español Banco San Paolo Banco Santander Central Hispano Banco Santander Santiago Bancolombia Banesto Bank Boston Bank of América Bank of Tokio - Mitsubishi Banque Nationale París Barings Bank Birf Bnp Paribas Bndes Caja de Ahorros y Monte de Piedad de Madrid Citibank N.A. Compagnie Belge de la Webstlb Conavi Credit Lyonnais N.Y. Dresner B. Luxemburg Deutsche Bank A.G. Export Develop. Corp. Granahorrar ING Bank N.V. Israel Discount Bank N.Y. J.P. Morgan Chase Bank Kreditanstal Fur Weideraubau Landesbank Rheiniland-Pfalz Mizuho Corporate Bank Ltd. Royal Bank of Canada Santander Investment Bank Ltd. Skandinaviska Enskilda Banken Societe Generale Westlb A.G. N.Y. Branch Unibanco Total Total principal US$ Euros Yen 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ Foreign currency Other foreign currency 2004 ThCh$ 2003 ThCh$ 2003 ThCh$ 1,805,481 - 10,760 345,966 219,234 10,148,062 - - - 2,139 329,676 - - 5,364 3,964 918,901 20,244 - - 7,536 140,774 202,374 83,051 - 5,220,485 - 2004 ThCh$ 4,730,550 - - 627,273 13,645 - - - - - 278,506 - - - - 845,785 - - - - - 4,510,617 - - - - 47,599,342 15,424,717 5,398,730 6,034,645 - 12,057,091 1,166,638 - - - 3,768,571 - - - 13,644 121,425 5,685 10,509,911 823,604 - - - - 10,760 - 16,859 57,334 7,959 1,757,221 1,872,924 - - - 10,760 - 1,724 323,089 30,974,021 321,924 355,648 - 9,579 - 4,310 - 10,758 3,134,095 - 1,857,431 2,034,805 - 1,169,498 - 10,761 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,510,451 - - 435,146 126,861 125,395 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 412,818 - - - - - - - - - - - - - - - - - - - - - - - - - - - 75,553 - - - - 50,369 201,474 163,192 - 1,026,287 - 46,241 2,250 - - - 1,865,846 - - - - - 304,785 - - - 422,655 - - 1,144,981 - 8,451,802 - - - 125,921 - - - - 75,553 - - - - - - - - - - - 57,382 - 1,246,090 - - - - 830,726 3,322,906 2,492,844 - 1,185,779 191,660 47,975 - - - - 1,787,795 637,967 - - - - 3,322,906 - - - 415,332 - - - - 8,933,350 - - - 2,076,816 - - - - 1,246,090 - - - - - - - - - - - 4,437,572 Ch$ 2003 ThCh$ - - - - - - - - - - - - - - 36,941,310 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2004 ThCh$ - - - - - - - - - - - - - - 1,700,403 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - As of December 31 2003 ThCh$ 1,805,481 75,553 10,760 345,966 219,234 10,148,062 50,369 201,474 163,192 2,139 1,355,963 - 46,241 7,614 36,945,274 918,901 20,244 1,865,846 - 7,536 140,774 202,374 83,051 304,785 5,220,485 13,510,451 47,599,342 7,019,307 12,057,091 - 1,144,981 - 8,451,802 121,425 10,509,911 - 125,921 10,760 16,859 57,334 1,872,924 75,553 10,760 1,724 323,089 355,648 9,579 4,310 10,758 3,134,095 2,034,805 1,169,498 10,761 57,382 2004 ThCh$ 4,730,550 1,246,090 - 627,273 13,645 - 830,726 3,322,906 2,492,844 - 1,464,285 191,660 47,975 - 1,700,403 845,785 - 1,787,795 637,967 - - 4,510,617 - 3,322,906 - - 15,424,717 6,352,275 - 1,166,638 - 3,768,571 8,933,350 13,644 5,685 823,604 2,076,816 - - 7,959 1,757,221 1,246,090 - - 30,974,021 321,924 - - - - 1,857,431 - - 4,437,572 104,809,329 72,526,521 126,861 125,395 13,945,597 412,818 14,014,291 32,175,808 36,941,310 1,700,403 169,837,388 106,940,945 100,743,284 70,524,435 124,781 124,218 13,934,061 411,782 12,990,012 30,295,455 36,708,402 1,614,382 164,500,540 102,970,272 Weighted average annual interest rate 4.96% 7.03% 3.00% 3.00% 3.46% 0.90% 16.79% 12.99% 4.56% 9.00% 5.64% 8.83% Percentage of debt in foreign currency: Percentage of debt in local currency: As of December 31, 2003 2004 % % 98.41% 78.25% 1.59% 21.75% Total 100.00% 100.00% A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 16. LO N G -TER M P O RTI O N O F D EBT D U E TO BAN KS AN D FI NANCIAL I NSTITUTI O NS 147 Financial Institution Currency After 10 years Years ThCh$ US$ $ Colom US$ Rs US$ US$ $ Colom $ Reaj. US$ US$ $ Colom $ Colom US$ Rs US$ US$ $ Arg US$ $ Arg $ Arg US$ $ Colom US$ US$ US$ US$ US$ Libra Yen Euros Rs Rs US$ Rs but within 5 years ThCh$ but within 10 years ThCh$ but within 3 years ThCh$ As of December 31, 2004 After 1 year After 2 years After 3 years After 5 years but within 2 years ThCh$ 5,335,062 - - 324,963 8,424,362 - - - - 4,645,000 - - - 2,209,682 442,826 - 1,768,301 3,456,151 1,347,869 636,494 - - - 3,901,800 1,621,643 8,506,342 - - - - - 39,632 624,288 28,697,984 - 1,808,395 - 2,246,322 - - - 3,718,211 - 1,518,028 - - - - 22,964,880 266,802 - - - - 1,381,678 - 11,668,915 - - 2,332,462 - - - - - - - - 83,610,000 1,554,974 - 1,008,580 1,698,508 - - 9,290,000 4,645,000 4,665,140 - - 313,735 - - 2,209,682 1,104,841 340,990 206,593 - - 3,536,601 1,768,300 6,202,860 3,456,151 - - - - - - 6,219,897 - - - - 83,610,000 3,243,286 - - - - - - - - 5,359,587 - 83,610,000 - - - 83,610,000 - 3,887,436 6,219,897 - - - 3,036,056 2,332,463 - - - - 533,605 - - - - - - - - - - - - - - - - 9,290,000 - - - 3,550,835 1,995,651 - 2,652,453 4,559,730 - - - - - - 4,864,927 - - - - - - - - 34,044,251 - - - - - - - - - 4,676,332 - - - - - - - - - - - - - 4,041,150 - - - 5,577,317 - 1,518,028 - - - - - 266,802 - - - - 1,381,678 - 8,265,483 1,621,643 - - - - - - - - 9,731,771 ABN Amro Bank Bancafe Banca Intesa S.P.A. Banco ABC Brasil Banco Bayerische Landes Banco BBVA Banco Colpatria Banco Estado Banco Español de Crédito Banco Europeo de Investimentos Banco Davivienda Banco de Colombia Banco de Sabadell Banco do Brasil Banco Lloyd’s Banco Medio Crédito Banco Nacionale de Paris Banco Nacional del Lavoro Banco Popular Español Bancolombia Banco Santander Central Hispano Banesto Bank of America Bank Tokio - Mitsubishi Banco do Estado de Ceará Banco do Nordeste do Brasil Barings Bank BNDES Caja de Ahorros y Monte de Piedad de Madrid US$ Caixa General de Depósitos Citibank N.Y. Compagnie Belge de la Webstlb 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 Mizuho Corporate Bank Ltd. Royal Bank of Canadá San Paolo IMI S.P.A. Skandinaviska Enskilda Banken Westlb A.G. N.Y. Branch Unibanco Euros US$ US$ $ Colom $ Colom US$ US$ US$ US$ $ Colom US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Rs 911,946 Total Long-term portion 2004 ThCh$ 5,335,062 - 2,332,462 - - - 324,963 - - 8,424,362 - 83,610,000 1,554,974 - 2,707,088 - - - 27,870,000 - 4,665,140 - 313,735 - - - 9,075,040 - 2,986,060 - - - 9,725,655 - 18,586,838 1,347,869 - 636,494 - - - 6,219,897 - - - 87,511,800 - 11,351,499 - 8,506,342 - - - - - - - - - - - 39,632 - 624,288 - - 77,833,593 - 83,610,000 - 1,808,395 - 83,610,000 6,287,472 - 3,887,436 - 6,219,897 - - - 9,295,528 - - - - 10,748,444 2,332,463 - - - - - - - - 22,964,880 1,067,209 - - - - - - - - - 2,763,356 - - - 19,934,398 - Annual interest rate average 4.00% 12.45% 0.00% 2.18% 6.47% 2.94% 12.45% 9.00% 0.00% 14.60% 12.45% 9.00% 0.00% 17.86% 5.18% 0.00% 1.75% 5.78% 7.06% 9.70% 0.00% 12.45% 0.00% 4.32% 6.64% 7.42% 0.00% 0.00% 0.00% 0.00% 0.00% 7.74% 6.98% 16.32% 2.94% 3.00% 2.94% 5.87% 12.45% 12.45% 0.00% 6.55% 0.00% 2.86% 12.45% 0.00% 0.00% 0.00% 7.23% 4.85% 0.00% 0.00% 0.00% 0.00% 0.65% 0.00% 12.90% Total long-term portion - 2003 ThCh$ 8,521,030 3,286,172 5,825,219 - 13,258,798 85,207,379 2,190,781 4,473,332 2,903,969 30,650,642 6,572,620 - 1,158,131 8,738,080 3,313,606 7,073,031 11,978,742 64,608,902 - - 4,079,381 8,763,125 361,513 121,040,257 17,353,151 - 65,830,614 412,208 432,999 124,781 177,321 83,733 - 87,722,501 45,648,375 - 24,516,394 - 5,476,953 8,763,125 5,825,219 24,342,879 9,126,754 13,356,162 3,286,172 10,959,017 5,825,219 933,418 48,691,600 1,498,278 5,185,655 2,333,544 5,825,225 56,123,399 5,029,074 5,825,217 28,535 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total 117,555,630 45,597,000 396,413,516 65,634,179 - 911,946 626,112,271 854,742,232 Percentage of debt in local currency: Percentage of debt in foreign currency: As of December 31, 2003 2004 % % 0.43% 0.52% 99.57% 99.48% Total 100.00% 100.00% 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 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 148 On May 15, 2003, Enersis S.A. and its subsidiary Empresa Nacional de Electricidad S.A. subscribed syndicated loans to refinance bank debts in an amount of US$2.330 million with 32 banks. Due to this refinancing, obligations with original maturities in 2003 and 2004, now come due in 2008, with principal payments starting in 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 of bank debt with resources from the sale of Río Maipo and its own capital increase. On November 24, 2003, Enersis S.A. prepaid all the subscribed loan refinancing of May 2003; this prepayment was made mainly 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 United States market and a further US$155 million from other cash sources. This final payment released all the securities pledged to the first thirty two syndicated banks. Similarly, Endesa Chile has prepaid US$458 million with resources from the sale of assets and issuance and placement of bonds issued on October 3, 2003, and a new US$250 million credit agreement signed on February 4, 2004. Endesa Chile subsidiary new credit agreements includes a 3.5 year term with repayment when due and a 1.15% libor spread. The operation was carried out without warranties, endorsements, or investments or indebtedness restrictions. On April 15, 2004, Enersis S.A. prepaid US$150 million of the syndicated loan obtained in November, 2003, for US$500 million from the banks BSCH, Banco Bilbao Viscaya Argentaria, San Paolo IMI, Bank of Tokio Mitsubishi, Caja Madrid, and Deutsche Bank. The remaining US$350 million balance was refinanced in November, 2004, through revolving overdraft lines whose term is 4 years. It is possible to prepay and draw down funds throughout the contract period. The interest (spread) depends on the corporate rating given by S & P. Currently, at BBB, the interest spread is 0.375%. On November 10, 2004, Endesa Chile entered into a new credit for MUS$250 million, with which it prepaid the loan entered into on February 4, 2004. The new Endesa Chile loan matures on November 11, 2010, and has a 0.375% Libor spread. The operation was carried out without warranties, endorsements, or investment or indebtedness restrictions. N OTE 17. OTHER CU RRENT LIABILITIES Other current liabilities are as follows: As of December 31, 2003 2004 ThCh$ ThCh$ Advances and guarantee on construction Taxes payables Contingencies - third party claims Customer advances Azopardo provision Accrued employees benefits - other Forward contracts and swaps Fair value - derivative contracts Emergency energy provision (Brazil) Other current liabilities 126,179 1,059,432 36,439 1,176,375 19,856,908 22,566,897 2,149,780 3,265,161 1,891,739 4,328,056 159,867 1,896,193 3,710,167 2,511,740 3,129,150 1,727,176 26,514,722 7,653,454 1,666,302 2,749,793 Total 66,994,856 41,180,674 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 149 N OTE 18. BO N DS PAYABLE a) Details of the current portion of bonds payable is as follows: Instrument Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Codensa Bonos Codensa Bonos Codensa Bonos Edesur Bonos Edesur Bonos Cerj Bonos Coelce 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 Betania Bonos Edegel Bonos Edegel Bonos Edegel 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 Endesa Chile Internacional Total Series One I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. B3 B5 B8 5 6 Unit Unit One Two Three One B-1 B-2 One Two Three One One E-1 y E-2 C2; D1 Y D2 F 144A 144A G H B One Two Three Four Five B One A Three A Three B Four A 5 A 2° issue 6 A 2° issue 6 B 2° essue 7 A 2° issue A-1 B-5 B-7 B-10 B-10 C-10 C-10 B-10 2° issue B-1 Unit Face value outstanding Currency 4,891,900 80,000,000 18,570,000 30,000,000 20,000,000 100,000,000 40,000,000 30,000,000 20,000,000 20,000,000 20,000,000 20,000,000 40,000,000 500,000,000,000 200,000,000,000 250,000,000,000 7,488,161 14,976,323 294,000,000 88,500,000 300,000,000 350,000,000 858,000 350,000,000 41,174 1,935,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 1,115,287 1,500,000 400,000,000 200,000,000 4,000,000 4,000,000 300,000,000,000 30,000,000 30,000,000 30,000,000 20,000,000 35,000,000 100,000,000 50,000,000 50,000,000 50,000,000 10,000,000 30,000,000 20,000,000 10,000,000 15,000,000,000 12,750,000,000 19,500,000,000 229,825,000,000 60,000,000,000 7,701,962,000 19,777,918,000 50,000,000,000 85,000,000,000 150,000,000 Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles $ Col. $ Col. $ Col. $ Arg $ Arg Reales Reales US$ US$ US$ US$ U.F. U.F. US$ US$ US$ US$ US$ U.F. U.F. U.F. US$ US$ U.F. U.F. $ Col. US$ US$ US$ US$ Soles Soles Soles Soles Soles US$ Soles Soles US$ $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. US$ Interest rate % 9.61% VAC* + 7.5% VAC* + 6.2% 6.50% 6.34% VAC* + 639% 4.47% 5.86% 8.75% 6.25% VAC* + 5.4% VAC* + 6.5% VAC* + 6.5% 10.91% 12.09% 12.28% 8.50% 7.00% 20.64% CDI + 16% 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% 7.88% 7.33% 8.13% 7.75% 8.50% 6.20% 6.80% 6.20% 8.35% 8.63% 4.80% 6.20% 12.04% 8.75% 8.41% 8.75% 8.46% 6.00% 6.00% 4.13% 4.88% 4.75% 3.75% 5.88% 8.50% 4.78% 9.89% 9.97% 10.29% 10.60% 10.57% 9.88% 10.25% 15.18% 13.95% 7.20% Maturity date 01/02/2011 01/07/2006 26/04/2007 01/01/2004 24/01/2004 10/10/2006 11/09/2007 15/01/2008 08/06/2009 15/01/2012 22/04/2014 01/06/2014 01/06/2014 15/03/2009 15/03/2011 15/03/2014 05/04/2006 05/10/2007 01/06/2007 20/02/2012 01/12/2006 01/12/2016 01/12/2026 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 01/08/2013 01/08/2015 15/10/2010 15/10/2008 10/11/2011 03/06/2006 14/02/2007 13/06/2007 21/11/2005 22/02/2004 06/06/2005 04/09/2006 30/10/2006 12/12/2006 26/01/2009 27/02/2008 18/06/2008 26/07/2009 26/07/2006 09/10/2004 09/10/2006 09/10/2009 10/11/2009 09/10/2009 08/10/2009 26/07/2006 26/07/2006 01/04/2006 As of December 31, 2003 ThCh$ 5,150 535,812 38,337 5,425,020 3,557,251 253,288 95,993 - - - - - - - - - - - - - 1,049,913 949,874 2,872 1,571,066 156,578 79,277 4,105,260 4,086,799 788,936 8,647,831 5,173,483 2,647,755 2,665,953 661,939 8,865,590 4,579,317 685,589 882,578 - 126,048 585,137 82,583 114,631 5,381,578 70,282 116,771 72,570 22,915 - - - - 60,416 2,857,948 102,361 1,243,574 201,756 75,532 40,901 1,193,394 1,215,623 1,643,342 2004 ThCh$ 5,377 538,881 38,556 - - 254,739 92,761 137,460 17,774 97,585 36,448 13,665 8,684 71,050 316,497 402,350 153,456 5,744 16,521,842 2,979,255 961,515 869,899 2,630 6,743,476 72,621 79,158 3,771,380 3,742,710 802,816 7,919,724 4,737,900 2,643,780 2,800,303 660,946 7,757,150 4,006,313 684,563 881,259 1,197,295 115,423 535,871 75,622 11,252,968 - 17,046,287 112,835 68,975 20,162 89,416 102,242 10,423 88,492 63,581 - 108,803 1,322,078 209,129 85,246 46,172 1,009,389 1,188,391 1,504,980 72,718,823 107,084,047 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 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 150 b) Details of the long-term portion of bonds payable is as follows as of: Instrument Series Currency Face value outstanding Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Edelnor Bonos Codensa Bonos Codensa Bonos Codensa Bonos Edesur Bonos Edesur Bonos Cerj Bonos Coelce 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 Betania Bonos Edegel Bonos Edegel 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 Endesa Chile Internacional Unit One I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. I°Prog. B3 B5 B8 5 6 Unit Unit One Two Three One B-1 B-2 One Two Three One One E-1 y E-2 C2; D1 Y D2 F 144A 144A G H B One Two Three Four One A Three A Three B Four A 5 A 2° issue 6 A 2° issue 6 B 2° issue 7 A 2° issue A-1 B-1 B-7 B-10 B-10 C-10 C-10 B-10 2° issue Total 4,891,900 80,000,000 18,570,000 100,000,000 40,000,000 30,000,000 20,000,000 20,000,000 20,000,000 20,000,000 40,000,000 500,000,000,000 200,000,000,000 250,000,000,000 7,488,161 14,976,323 294,000,000 88,500,000 300,000,000 350,000,000 858,000 350,000,000 41,174 1,935,000 230,000,000 220,000,000 200,000,000 400,000,000 400,000,000 6,000,000 1,115,287 1,500,000 400,000,000 200,000,000 4,000,000 4,000,000 300,000,000,000 30,000,000 30,000,000 30,000,000 20,000,000 100,000,000 50,000,000 50,000,000 50,000,000 10,000,000 30,000,000 20,000,000 10,000,000 15,000,000,000 85,000,000,000 19,500,000,000 229,825,000,000 60,000,000,000 7,701,962,000 19,777,918,000 50,000,000,000 150,000,000 Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles Soles $ Col. $ Col. $ Col. $ Arg $ Arg Reales Reales US$ US$ US$ US$ U.F. U.F. US$ US$ US$ US$ US$ U.F. U.F. U.F. US$ US$ U.F. U.F. $ Col. US$ US$ US$ US$ Soles Soles Soles Soles US$ Soles Soles US$ $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. $ Col. US$ Interest rate % 9.61% VAC* + 7.5 % VAC* + 6.2% VAC* + 6.9% 4.47% 5.86% 8.75% 6.25% VAC* + 5.4% VAC* + 6.5 % VAC* + 6.5 % 10.91% 12.09% 12.28% 8.50% 7.00% 20.64% CDI + 16% 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% 7.88% 7.33% 8.13% 7.75% 8.50% 6.20% 6.80% 6.20% 8.35% 8.63% 4.80% 6.20% 12.04% 8.75% 8.41% 8.75% 8.46% 6.00% 4.13% 4.88% 4.75% 3.75% 5.88% 8.50% 4.78% 9.89% 13.95% 10.29% 10.60% 10.57% 9.88% 10.25% 15.18% 7.20% Maturity date As of December 31, 01/02/2011 01/07/2006 26/04/2007 10/10/2006 11/09/2007 15/01/2008 08/06/2009 15/01/2012 22/04/2014 01/06/2014 01/06/2014 15/03/2009 15/03/2011 15/03/2014 05/04/2006 05/10/2007 01/06/2007 20/02/2012 01/12/2006 01/12/2016 01/12/2026 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 01/08/2013 01/08/2015 15/10/2010 15/10/2008 10/11/2011 03/06/2006 14/02/2007 13/06/2007 21/11/2005 06/06/2005 04/09/2006 30/10/2006 12/12/2006 26/01/2009 27/02/2008 18/06/2008 26/07/2009 26/07/2006 26/06/2006 09/10/2006 09/10/2009 10/11/2009 09/10/2009 08/10/2009 26/07/2006 01/04/2006 2003 ThCh$ 859,783 14,431,400 3,379,519 18,103,830 7,030,264 - - - - - - - - - - - - - 182,593,500 151,999,350 522,217 213,025,750 696,053 33,558,705 125,308,441 133,901,900 24,598,997 243,458,000 243,458,000 104,058,000 18,103,889 26,014,500 243,458,000 121,729,000 69,372,000 69,372,000 - 18,259,350 18,259,350 18,259,350 12,172,900 17,570,585 8,785,291 8,785,291 8,785,291 - - - - 3,286,172 18,621,639 4,272,023 50,349,935 13,144,687 3,163,907 1,777,815 10,953,905 91,296,751 2004 ThCh$ 830,818 14,514,766 3,398,881 18,206,859 6,793,418 5,095,064 3,396,709 3,396,709 3,447,326 3,440,132 6,868,319 11,662,308 46,649,231 58,311,539 7,488,161 14,976,323 46,303,253 16,846,109 167,220,000 139,201,732 478,249 195,090,000 642,009 33,508,492 114,758,069 122,628,000 22,527,879 222,960,000 222,960,000 103,902,300 15,477,997 25,975,575 222,960,000 111,480,000 69,268,200 69,268,200 69,973,766 16,722,000 16,722,000 16,722,000 - - 8,489,187 8,489,187 8,489,187 5,574,000 5,093,511 3,395,675 5,574,000 3,498,692 19,825,842 4,548,300 53,605,777 13,994,769 3,570,852 2,006,479 11,662,258 83,610,000 2,356,777,340 2,493,500,109 * VAC (“Valor de activación constante”) is issued by the Banco Central de Reserva del Perú and calculated based in the inflation rate (represents an inflation - indexed new Peruvian Sol). A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 151 c) Bonds payable consist of the following: (1) Enersis S.A. Series B1-B2 During the second half of 2004, second half, debts have been re-nominated through UF/US$swap contrac ts for an amount of US$100,000,000 associated to the tranche 1 bond and US$250,000,000 associated to tranche 2. On September 11, 2001, Enersis S.A. registered two series of bearer bonds dated June 14, 2001, as follows: 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 Enersis Internacional repurchased a total of US$100,266,000 in bonds with accrued interest, at a price of US$95,536,000. (3) Internacional Bonds (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$350 million. This placement was made in a single tranche, whose features are as follows: Series 1 Total amount in US$ 350.000.000 Years to maturity 10 Stated annual interest rate 7,38% Interest is paid six-monthly and amortization of capital is a single installment at the end of the term. During 2004 second half, debts have been re-nominated through US$/UF swap contracts for the total of this issue. (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. Series B1 B1 B2 B2 Total amount No.of bonds In UF 1,000,000 3,000,000 1,000,000 1,500,000 per series 1,000 300 1,000 150 Face value in UF 1,000 10,000 1,000 10,000 The scheduled maturity of the Series B-1 bonds is 8 years, interest and principal payable semi-annually. Annual interest is 5.50%, compounded semi-annually. The scheduled maturity of the Series B-2 bonds is 21 years, principal payments beginning after 5 years, interest and principal payable semi-annually. Annual interest is 5.75%, compounded semi- annually. In November 2003, these series were voluntarily exchanged for shares in connection with Enersis’ capital increase approved on March 31, 2003. Holders converted Ch$63,656,587 (historical) into the equivalent of 893,612,466 first issue shares; the amounts underwritten were determined by experts and the following amounts were capitalized Ch$46,964,178,894 for series B1 and Ch$7,028,065,024 (historical) for series B2. (See Note 22 (a.)) (2) Enersis S.A. (Yankee Bonds) On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: Series 1 2 3 Total amount in US$ 300,000,000 350,000,000 150,000,000 Years to maturity 10 20 30 Stated annual interest rate 6.9% 7.4% 6.6% Interest is payable on a semi-annual basis and principal is due upon maturity. The Series 3 bond holders have a pre-redemption option in year seven, which was exercised by nearly all holders in November 2003 for US$149,142,000. 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 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 152 (5) Edelnor Bonds (Subsidiary of Distrilima S.A.) First Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Principal amortization Second Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Anticipated redemption option 100 soles each 15 years : March 1, 1996 : 49,919 : : : 9.6136% annual : Annually, on coupon maturity : Amortization of total principal upon maturity 146,300 1,000 soles each : November 10, 1998 : : : 4 years : : Accrued and paid within 90 days : Early redemption option 14.396% annual At December 31, 2004, this Issuance is totally cancelled. Third Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment 15,000 : August 7, 1998 : : US$1,000 each : 3 years : 7.7% annual : Accrued and paid within 90 days At December 31, 2004, this Issuance is totally cancelled. First program of Corporate Bonds First Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Second Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment 146,300 : October 29, 2001 : : 30,000 soles each : 5 years : 7.5% + VAC : Semi - annual : October 19, 2001 : 20,000 : 5,000 new soles each : 5 years : 6.9% annual + VAC : Semi – annual A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 153 Third Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Fourth Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Fifth Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Sixth Issuance Date of Issuance Number of bonds subscribed Face value Redemption term Interest rate Interest payment Seventh Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Payment of interests Eighth Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Interest payment 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 : 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 : January 16, 2004. : 6,000 bonds. : 5,000 (new soles) each. : 4 years. : 5.86%. : Semi-annual. : January 16, 2004. : 4,000 bonds. : 5,000 (new soles) each. : 8 years. : 6.25%. : Semi-annual. 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 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 154 Ninth Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Interest payment Tenth Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Interest payment Eleventh Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Interest payment Twelfth Issuance Date of Issuance Number of bonds subscribed Nominal value Term Interest rate Interest payment (6) Codensa S.A. : April 22, 2004. : 4,000 bonds. : 5,000 (new soles) each. : 10 years. : VAC + 5.4375%. : Semi-annual. : June 9, 2004. : 4,000 bonds. : 5,000 (new soles) each. : 5 years. : 8.75%. : Semi-annual. : June 9, 2004. : 4,000 bonds. : 5,000 (new soles) each. : 10 years. : VAC + 6.50%. : Semi-annual. : June 24, 2004. : 8,000 bonds. : 5,000 (new soles) each. : 10 years. : VAC + 6.50%. : Semi-annual. Condensa S.A. Issued bonds on March 11, 2004. First Issuance Issuer Issued securities Amount Issued 1st principal payment Nominal interest rate Interest payment : Codensa. : Securities negotiable in Colombian pesos. : 500,000,000,000 Colombian pesos. : maturity in 2009 for 50,000,000,000 Colombian pesos. : 10.91% average annual rate. : Quarterly. Interest earned at the closing of the fiscal year is M$71,050, and is presented in current liabilities. 2nd principal payment Nominal interest rate Interest payment : Maturity in 2011 for 200,000,000,000 Colombian pesos. : 12.09% average annual rate. : Quarterly. Interest earned at the closing of the fiscal year is M$316,497, and is presented in current liabilities. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 155 3rd principal payment Nominal interest rate Interest payment (7) Edesur S.A. : Maturity in 2014 for 250,000,000,000 Colombian pesos. : 12.28% average annual rate. : Quarterly. Interest earned at the closing of the fiscal year is M$402,350, and is presented in the current liabilities. On October 5, 2004, under its medium-term certificate of indebtedness Issuance program, the Corporation Issued negotiable liabilities in Argentinean pesos for a total amount of MUS$40,302 in two 18-month series (class 5) and 1-3-year series (class 6), respectively. Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment Issuer Issued securities Amount Issuance Principal due Nominal interest rate Interest payment : Edesur S.A. : Negotiable liabilities in Argentinean pesos. : MUS$13,434. : Maturity in 2006. : 8.5% average annual rate. : Semi-annual. : Edesur S.A. : Negotiable liabilities in Argentinean pesos. : MUS$26,868. : Maturity in 2007. : 4.0% minimum annual nominal rate. : Quarterly. (8) Compañía de Electricidade do Rio de Janeiro S.A. On July 28, 2004, the Corporation issued liabilities in reales for a total amount of R$294,000,000 in a 3-year term series. Issuer Issued securities Amount Issuance Principal due Nominal interest rate Interest payment (9) Coelce S.A. : Compañía de Electricidade do Rio de Janeiro S.A. S.A. : Liabilities negotiable in reales. : R$294,000,000. : Maturity in 2007. : 20.64% average annual rate. : Quarterly. On February 29, 2004, the Corporation issued liabilities in reales for a total amount of MR$88,500 in a 12-year term series. Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payment : Coelce S.A. : Negotiable securities in reales. : MR$88,500. : Maturity in 2012. : 116% x CDI average annual rate. : Semi-annual. 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 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 156 (10) Endesa Chile S.A. (i) Our Subsidiary Endesa - Chile S.A. currently has 5 outstanding public bond issues on the domestic market on the following dates: • • • • • On September 12, 1988 , it registered in the SVS ( superintendencia de valores y seguros) , first issuance of bonds worth U.F. 5,000,000 under No. 105 ; this was totally placed a t December 31, 1988. This issuance is totally paid on september 1 , 2000. On August 24 , 1989 , it registered the second bond issuance worth U.F. 6, 000.000 , under No.111 ; this was totally placed at December 31 , 1990. This issuance is totally paid at October 1 , 2001. On December 7 1990, it registered the third issurance of bonds worth U.F. 4,000,000 under No. 131. U.F. 2,030,000 of this issuale had been placed at December 31 1997. The remaining 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 issuance 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 issuance worth U.F. 8,000,000 under Nos. 317 and 318 and then amended it on October 2 2003; this issuale was totally placed at December 31, 2003. Risk rating of the issued bonds is as follows as of December 31, 2004: - Feller-Rate Clasificadora de Riesgo Ltda. - Comisión Clasificadora de Riesgo - Fitch Chile Clasificadora de Riesgo Ltda. Category A+ A+ A+ ISSUANCE TERMS Third Issuance Issuer Securities issued Issuance Value Indexation Amortization period Capital amortization Early Redemption Nominal interest rate Interest Payments : 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 principal). Series D-1 and D-2: 20 years (5-year grace year and 15 years to pay off 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 dates. : 6.8% annually upon expiration, compound and actual rate per semester on outstanding principal, readjusted by the value of the Unidad de Fomento. The applicable semi-annual interest rate will be equal to 3.34409%. : Interest will be paid semi-annually each May 1 and November 1, starting May 1, 1991. Accrued A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 157 Guarantee Placement period Fourth Issuance Issuer Securities issued Issuance Value (1) Readjustment base Amortization period Early redemption Nominal interest rate Interest payment Guarantee Placement period interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$201,501, ThCh$228,969 and ThCh$254,277 respectively, and is shown under current liabilities. : There is no specific collateral ization, 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 the value of the Unidad de fomento. The semi-annual interest rate will be 3.0534%. : Accrued interest as of December 31, 2003 amounts to ThCh$3,304,726 (ThCh$3,309,694 in 2003 and ThCh$3,308,044 in 2002) which is shown under current liabilities. : 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 Securities and Insurance (1) Through a cross currency swap, the UF debt was exchanged for US dollar debt, leaving a net unrealized gain of ThCh$8,089,738 as of December 31, 2004 (ThCh$4,964,116 in 2003) which is included in other assets. Fifth Issuance Issuer Securities issued Amount of issuance Readjustment base Amortization period Pre-redemption Nominal interest rate Series H Placement deadline Security Interest payment : 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 principal not fully paid adjusted by the value of the Unidad de Fomento. The interest rate to be applied every six months will be 2.3719%. : 6.2% per year, compounded every six months and effective on the principal not fully paid adjusted by the value of the Unidad de Fomento. The interest rate to be paid every six months will be 3.0534%. : 36 months as of date of registration in Securities Register of the Superintendency of Securities and Insurance. : No specific security, except for general security of all the issuer’s properties. : Interest will be paid semi-annually, due on April 15 and October 15 of each year starting from April 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 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 158 15, 2004. Interest accrued at year-end is ThCh$1,565,822 (ThCh$1,568,167 in 2003) and is presented in current liabilities. (ii) Endesa Chile S.A. has issued and placed four public offerings of bonds in the international market as follows: First Issuance Issuer Securities issued Issuance Value Readjustment Amortization period Nominal interest rate Interest Payments Second Issuance Issuer Securities issued Issuance Value Readjustment Principal due Nominal interest rate Interest Payment Third Issuance Issuer Securities issued Issuance Value Readjustment Principal due Nominal interest rate Interest Payment Fourth Issuance Issuer Securities issued Amount of issuale : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(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 : 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$11,723,401 (ThCh$12,801,201 in 2003 and ThCh$15,646,787 in 2002), which is shown under current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(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 : 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$7,919,724 (ThCh$8,647,830 in 2003 and ThCh$9,920,363 in 2002), which is shown under current liabilities. : Empresa Nacional de Electricidad S.A. : Marketable securities denominated in US$(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$4,737,900, ThCh$5,173,483 and ThCh$6,323,499 in 2004, 2003 and 2002, respectively, which is shown under current liabilities. : Empresa Nacional de Electricidad S.A. : Electronic negotiable bonds expressed in American dollars on the American and European markets, under rules “Rule 144A” and “Regulation S”. : Six hundred million US dollars (US$600,000,000) divided into: A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 159 Adjustment Principal due Nominal interest rate Payment of interest Series August 1, 2013: US$400,000,000 Series August 1, 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. : Interest will be paid semi-annually on February 1 and August 1 each year starting from July 23, 2003. Interest accrued at year-end was ThCh$11,763,463 (ThCh$13,444,908 in 2003) and presented in current liabilities. The risk rating of these bonds is as follows as December 31, 2004: - 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 issuale 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 3 bonds, for ThUS$21,324 and ThUS$134,828, respectively, were purchased, whose nominal values amounted to ThUS$24,119 and ThUS$159,584 for each series. (11) Subsidiaries of Endesa Chile S.A. (I) Endesa Chile Internacional issued Yankee Bonds on April 1, 1996. Risk rating of the bond issuance is as follows as of December 31, 2004: - Standard & Poor’s - Moodys Investors Services Category BBB- Ba 2 ISSUANCE TERMS First Issuance Issuer Securities issued Issuance Value Principal due Nominal interest rate Interest Payments : Endesa Chile Internacional. : Marketable securities denominated in US$(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$1,504,980 (ThCh$1,643,342 in 2003 and ThCh$1,885,160 in 2002) and is shown under current liabilities. 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 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 160 Guarantee : Guarantee from Empresa Nacional de Electricidad S.A. As of July 24, 2000, the first issuale of Eurobonds (European Medium Term Note Programme) was registered in England for 1,000 million Euros. ISSUANCE TERMS First Registration Securities registered Issuance value Principal due Nominal interest rate Interest payments : 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, 2004, 2003 and 2002 amounts to ThCh$0, ThCh$0 and ThCh$2,391,942 respectively and is shown in Guarantee : Empresa Nacional de Electricidad S.A. current liabilities. (*) By way of a cross-currency swap operation, the debt in Euros was exchanged for U.S. dollar debt. At December 31, 2004, this issuance was totally cancelled. (II) Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14, 2000 and November 27, 2000, August 22, 2001, June 6, 2003, September 4, 2003, October 29, 2003, December 12, 2003, January 26, 2004, February 27, June 18, 2004 and July 26, 2004 as per the following: First Issuance Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payments Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payments Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payments : Edegel S.A. : Marketable securities denominated in US$(120,000 bonds). : US$120,000,000 : June 3, 2007, February 14, 2007, June 13, 2006 and November 21, 2005 respectively. : 8.75%, 8.41%, 8.75% and 8.46% annually : Interest will be paid semi-annually, starting December 3, 1999. Accrued interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$831,884, ThCh$1,018,802 and ThCh$1,351,145 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 : Interest will be paid semi-annually. Accrued interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$67,914, ThCh$70,282 and ThCh$0 respectively and is shown in other current liabilities. : 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 : Interest will be paid semi-annually. Accrued interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$112,835, ThCh$116,771 and ThCh$0, respectively and is shown in other current A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Issuer Securities issued Amount of issuance Principal due Nominal interest rate Interest payments Issuer Securities issued Amount of issuance Principal due Nominal interest rate Interest payments Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payments Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payments Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payments Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payments 161 liabilities. : Edegel S.A. : Negotiable Instruments in Nuevos Soles (10,000 bonds) : Fifty million nuevos soles (NS50,000,000). : Total maturity at October 30, 2006. : 4.875% per year. : Interests will be paid semi-annually. Interests accrued at year-end is ThCh$68,975, (ThCh$72,570 in 2003) and is presented in current liabilities. : Edegel S.A. : Negotiable instruments in Nuevos Soles (10,000 bonds) : Fifty million Nuevos Soles (NS50,000000). : Total maturity at December 12, 2006. : 4.75% per year. : Interests will be paid semi-annually. Interests accrued at year-end is ThCh$20,162 (ThCh$22,915 in 2003) and is presented in current liabilities. : Edegel S.A. : Negotiable securities in dollars (10,000 bonds.) : Ten million (US$10,000,000.) : Total maturity on January 26, 2009. : Due annually 3.75%. : Semi-annual. Interest earned at the closure of the fiscal year is M$89,416 and presented in current liabilities. : Edegel S.A. : Negotiable securities in new soles (6,000 bonds.) : Thirty million new soles (NS 30,000,000.) : Total maturity on December 12, 2006. : Due annually 5.875%. : Semi-annual. Interest earned at the closing of the fiscal year is M$102,242 and presented in current liabilities. : Edegel S.A. : Negotiable securities in new soles (4,000 bonds.) : Twenty million new soles (NS 20,000,000.) : Total maturity on June 18, 2008. : Due annual 8.5%. : Semi-annual. Interest earned at the closing of the fiscal year is M$10,423 and presented in current liabilities. : Edegel S.A. : Negotiable securities in dollars (10,000 bonds.) : Ten million dollars (US$10,000,000.) : Total maturity on July 26, 2009. : Due annual 4.78%. : Semi-annual. Interest earned at the closing of the fiscal year is M$88,492 and presented in current liabilities. 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 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 162 (III) Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001, the first issuance, and on February 26, 2003, the second issuance as per the following: First Issuance Issuer Securities issued Issuance Value Principal due Interest nominal rate Interest payment Second Issuance Issuer Securities issued Issuance value Principal due Nominal interest rate Interest payments : Emgesa S.A. : Marketable securities denominated in Colombian pesos : $Col 530,000,000,000 : Maturities between 2006 and 2009 amount to Col$449,554,880. : 10.77% annual average rate : Interest will be paid semi-annually. Accrued interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$1,771,428, ThCh$4,522,072 and ThCh$5,575,837 and is shown under current liabilities. : Emgesa S.A. : Marketable securities denominated in Colombian pesos : $Col 50,000,000,000 : Maturity as of July 26, 2006. : 15.18% annual average rate : Interest will be paid annually. Accrued interest as of December 31, 2004, 2003 and 2002 amounts to ThCh$2,261,361, ThCh$2,469,433 and ThCh$228,760 respectively and is shown in other current liabilities. (IV) Central Hidroeléctrica Betania S.A. E.S.P. issued bonds on November 11, 2004, completing the first issuale. First issuale Issuer Issued securities Amount issued Principal due Nominal interest rate Interest payments : Central Hidroeléctrica Betania S.A. E.S.P. : Straight bonds in Colombian pesos. : 400,000,000,000 Colombian pesos. : Maturity between 2009 and 2011, for 300,000,000,000 Colombian pesos. : 12.4% : Quarterly and annual. Interest earned at the closing of the fiscal year is M$1,197,295 and is presented in current liabilities. Amortized bond discounts of Enersis S.A. and its affiliates of ThCh$20,072,691 and ThCh$19,358,573 as of September 31, 2003 and 2004, respectively are included in Other Assets (see Note 14). A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 163 N OTE 19. ACCRU ED E XPENSES N OTE 20. SE VER ANCE I N D EM N ITIES a) Short-term accruals: Accrued expenses included in current liabilities are as follows: Long-term accruals include employee severance indemnities, calculated in accordance with the policy described in Note 2n. An analysis of the changes in the accruals in each year is as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ As of December 31, 2003 ThCh$ 2004 ThCh$ Bonus and other employee benefits 24,444,587 26,066,606 Opening balance as of January 1 8,610,121 10,636,360 Litigation and other contingencies 4,922,735 4,305,757 Increase in accrual Construction and other 2,779,622 - Transfer to short-term Energy purchases from others 6,563,565 2,487,185 Payments during the period 2,871,119 1,963,414 (42,084) (95,654) (537,174) (1,491,583) Pension accruals Suppliers and services Others Total 1,818,240 1,140,558 13,309,688 8,300,418 Total 1,208,393 2,032,593 55,046,830 44,333,117 10,901,982 11,012,537 b) Long-term accruals: As of December 31, 2003 ThCh$ 2004 ThCh$ Accrued monthly corporate and other taxes 7,830,827 7,450,766 Post-retirement benefits-Chilean subsidiaries 11,685,741 16,024,333 Post-retirement benefits (Cerj Coelce) 61,973,808 53,776,105 Severance indemnity Labor contingencies (Cerj) 10,901,982 11,012,537 162,848,093 152,182,968 Post-retirement benefits-foreign subsidiaries 65,942,279 68,620,416 Others Total 4,169,678 1,958,148 325,352,408 311,025,273 During the 2004 fiscal year, bad debt write-offs were ThCh$2,587,887 (ThCh$3,275,265 in 2003). C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 164 N OTE 21. M I N O RIT Y I NTEREST a) Minority shareholders’ participation in the shareholders’ equity of the Company’s subsidiaries is as follows: Company Aguas Santiago Poniente Cam Argentina S.A. Cam Colombia S.A. Capital de Energía S.A. Central Hidroeléctrica Betania S.A. Central Cachoeira Dourada Central Costanera S.A. Chilectra S.A. Cía. Eléctrica San Isidro S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Compañía de Electricidade do Rio de Janeiro S.A. Companhia Energetica Do Ceara - Coelce Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Elesur S.A. Emgesa S.A. Empresa Eléctrica Pangue S.A. Endesa Endesa Argentina S.A. Generandes Perú S.A. Hidroeléctrica El Chocón S.A. Hidroinvest S.A. Ingendesa S.A. Inversiones Distrilima S.A. Investluz S.A. Luz de Bogotá S.A. Pehuenche S.A. Soc. Agrícola de Cameros Ltda. Soc. Agrícola Pastos Verdes Ltda. Túnel El Melón S.A. Total ThCh$ - Equity ThCh$ As of December 31, 2003 Participation % 0.00% 0.10% 0.00% 49.10% 14.38% 0.39% 35.74% 1.76% 50.00% 49.00% 51.52% 27.46% 43.41% 45.00% 36.44% 40.00% 34.11% 0.00% 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% 2.36% 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% - 526,322 2,325,024 476,360,496 438,238,156 416,599,853 173,721,282 437,157,882 45,055,766 33,824,461 847,938,214 457,564,052 546,789,747 (561,663) 557,722,052 227,179,203 590,358,954 - 815,270,848 87,532,641 1,529,985,766 58,412,739 309,802,801 206,365,348 85,746,919 2,625,142 135,303,911 293,938,943 499,679,635 199,166,284 7,091,001 56,659,804 (6,702,981) 526 30 233,893,003 63,009,005 1,641,902 62,079,140 7,636,110 22,527,884 16,573,986 436,861,205 125,649,583 237,362,977 (252,749) 203,255,109 90,871,681 201,359,739 420,002,269 4,390,812 612,286,163 5,841 125,064,355 71,835,778 25,784,098 62,019 42,769,567 110,374,073 274,823,805 14,638,722 3,013,675 25,496,913 (3,352) - Total ThCh$ Equity ThCh$ 2,138,763 490,904 1,404,091 433,491,652 396,701,579 360,922,632 164,571,235 457,376,118 52,472,376 26,694,010 805,502,466 523,890,321 479,452,075 (1,253,478) 486,331,290 178,099,675 523,523,726 56,688,517 738,223,906 78,452,150 1,568,897,981 53,515,263 276,210,577 179,753,696 72,645,379 2,362,755 106,797,362 262,696,532 - 190,683,185 7,064,914 59,590,252 (8,422,193) As of December 31, 2004 Participation % 45.00% 0.10% 0.00% 49.00% 14.38% 0.39% 35.74% 1.76% 50.00% 49.00% 78.19% 18.77% 43.41% 45.00% 36.44% 40.00% 34.11% 0.00% 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% 2.36% 31.61% 37.55% 0.00% 7.35% 42.50% 45.00% 0.05% 962,443 492 19 212,410,909 57,036,960 1,422,468 58,809,379 7,990,673 26,236,188 13,080,065 629,785,730 98,358,372 208,131,503 (576,779) 177,237,603 71,239,870 178,563,568 609 380,310,072 3,935,317 627,858,471 5,352 111,503,503 62,572,262 21,844,465 55,820 33,758,645 98,642,819 - 14,015,214 3,002,588 26,815,613 (4,211) Total 3,433,013,869 3,125,006,002 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S b) Minority shareholders’ participation in the net (income) or loss of the Company’s subsidiaries is as follows: 165 Company Aguas Santiago Poniente 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. Chilectra S.A. Cía. Eléctrica San Isidro S.A. Cía. Peruana de Electricidad S.A. Codensa S.A. Cía. do Electricidade do Río do Janeiro Companhia Energetica Do Ceara - Coelce Constructora y Proyectos Los Maitenes S.A. Edegel S.A. Edelnor S.A. Edesur S.A. Elesur 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. Ingendesa S.A. 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. As of December 31, 2003 Participation % Total ThCh$ Net income ThCh$ - (64,331) (745,590) (8,829,230) 1,730,620 (4,422,415) (28,497,368) (52,756,294) (13,507,303) (2,260,699) (18,470,888) 101,242,812 10,442,705 923,958 (32,678,917) (13,404,450) 27,778,921 - (22,776,713) (38,094,663) (80,084,185) (39,291,822) (29,270,349) (13,950,752) (7,282,633) (1,641,617) (9,078,950) 8,899,063 (4,311,603) (46,943,144) 89,881 (808,321) 2,322,960 - - 0.10% 0.001% 49.10% 14.38% 0.39% 35.74% 1.76% 50.00% 49.00% 51.52% 27.46% 43.41% 45.00% 36.44% 40.00% 34.11% (65) (10) (4,335,152) 248,825 (17,430) (12,560,325) (922,456) (6,753,652) (1,107,742) (9,516,276) 27,801,828 4,533,208 415,781 (11,909,439) (5,361,780) 9,474,840 - - 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% 2.36% 31.61% 37.55% 55.00% 7.35% 42.50% 45.00% 0.05% (11,733,857) (1,910,904) (32,048,951) (3,929) (11,816,153) (4,856,257) (2,189,888) (38,783) (2,869,857) 3,341,598 (2,371,382) (3,450,321) 38,200 (363,745) 1,161 Total ThCh$ Net income ThCh$ 108,643 65,282 (907,447) (13,373,141) 4,639,241 (14,818,479) (5,476,455) (77,321,577) (14,213,098) (119,602) (56,675,131) 30,959,195 16,071,989 720,068 (17,792,745) 522,853 17,129,823 1,270,758 (28,156,505) (4,839,958) (83,788,756) 452,791 (19,175,749) 3,492,111 6,762,318 (947,753) (523,706) 6,494,157 As of December 31, 2004 Participation % 45.00% 0.10% 0.00% 49.00% 14.38% 0.39% 35.74% 1.76% 50.00% 49.00% 78.19% 18.77% 43.41% 45.00% 36.44% 40.00% 34.11% 0.00% 51.52% 5.02% 40.02% 0.01% 40.37% 34.81% 30.07% 2.36% 31.61% 37.55% 0.00% 7.35% 42.50% 45.00% 0.05% 48,889 65 (12) (6,552,839) 667,021 (58,403) (1,957,006) (1,353,288) (7,106,549) (58,605) (44,311,706) 5,812,469 6,976,896 324,031 (6,484,352) 209,141 5,842,643 14 (14,505,359) (242,782) (33,531,486) 45 (7,741,062) 1,215,604 2,033,429 (22,391) (165,543) 2,438,563 (27,870,640) 26,087 (1,217,491) 1,719,213 (2,048,492) 11,087 (547,871) 860 - - Total (80,282,913) (101,106,989) N OTE 22. SHAREH O LD ERS’ EQ U IT Y a) Paid capital The Extraordinary General Meeting of Shareholders of Enersis held on March 31, 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 2) 3) May 26, 2003 have the option of subscribing to 2.9408 new shares for each old one at a price of Ch$60.4202 per share. 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 an independent expert and at placement price of Ch$60.4202 per share. 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. 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 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 166 In this phase, shareholders may subscribe to 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 subscribe to by controlling shareholder Elesur for the equivalent of Ch$870,464,185,043 and 7,706,423,549 shares by minority shareholders for the equivalent of Ch$465,623,656,018. Elesur underwrote and paid in its shares by capitalizing financial loans that it held with Enersis on the date of underwriting. The exchange was approved by the Extraordinary Shareholders’ Meeting on March 31, 2003, at 86.84% of its par value based on an independent expert appraisal report performed pursuant to the Chilean Company Law, 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; capitalization was Ch$46,964,178,894 for series B1 and Ch$7,028,065,024 for series B2, at Ch$60.4202 per share. This operation resulting in recording a share premium of Ch$6,247,821,056. During the second preferential underwriting period, 1,244,542,758 shares equivalent to Ch$75,195,523,918 were subscribed. The second share underwriting period concluded on December 30, 2003 fielding a capital increase, in which 99.9% of the capital authorized by the Extraordinary General Meeting of Shareholders, in other words 24,360,146,365 shares, were subscribed, leaving Enersis’ capital with a total of 32,651,166,465 subscribed and paid in shares. b) Dividends During the years ended December 31, 2003 and 2004 the Company no paid dividends. c) Number of shares As of December 31, 2003 Shares Capital stock authorized 32,651,166,465 Capital stock issued and outstanding 32,651,166,465 2004 Shares 32,651,166,465 32,651,166,465 d) Subscribed and paid in capital is as follows: As of January 1, Intercompany loan capitalization Bond exchange Subscribed shares As of December 31, 2004 ThCh$ 2,283,404,124 2003 ThCh$ 777,688,286 890,441,339 55,176,024 560,098,475 As of December 31, 2,283,404,124 2,283,404,124 e) Net losses from operations and accumulated net income (losses) of development-stage subsidiaries are as follows: Company Central Generadora Termoelectrica Fortaleza S.A. Total As of December 31, 2004 Net income (loss) for the period ThCh$ Retained earnings (accumulated deficit) ThCh$ - - (2,673,664) (2,673,664) A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 167 f) Other reserves Other reserves at December 31, 2004 are composed of the following: Reserve for entities using remeasurement method Reserve for accumulated conversion differences Reserve for Technical Bulletin No. 72 (1) Initial balance at Reserve Final balance at January 1, 2004 for the period December 31, 2004 ThCh$ (10,499,405) (15,814,072) ThCh$ (4,435,524) (103,832,123) - 11,992,130 ThCh$ (14,934,929) (119,646,195) 11,992,130 Total (26,313,477) (96,275,517) (122,588,994) (1) Corresponds to the reserve generated by the purchase of shares of Compañía de Electricidad de Río de Janeiro S.A. in 2004. This effect has been recorded in accordance with Technical Bulletin No.72 of the Chilean Institute of Accountants. Detail of changes in the reserve for accumulated conversion differences is as follows: Cumulative translation adjustment Initial balance at January 1, 2004 ThCh$ (15,814,072) Reserve for assets ThCh$ (109,623,996) Reserve for liabilities ThCh$ 5,791,873 Final balance at December 31, 2004 ThCh$ (119,646,195) Total (15,814,072) (109,623,996) 5,791,873 (119,646,195) The detail of the accumulated conversion difference reserve at December 31, 2004 is as follows: Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Compañía de Electricidade do Rio de Janeiro S.A. Luz de Bogotá S.A. Investluz S.A. Central Geradora Termelétrica Fortaleza S.A. Enersis Energía de Colombia Endesa Market Place Endesa Argentina S.A. Endesa Chile Interncional S.A. Codensa S.A. Endesa de Colombia S.A. Central Costanera S.A. Conosur S.A. Capital de Energía S.A. Ingendesa Do Brasil Ltda. Total ThCh$ (16,109,082) (6,111,287) (36,678) (19,299,737) (35,101,980) 2,361,312 (1,981,396) (4,131,448) (561,859) 376,205 8,772 (3,028,008) (27,711,750) 70,212 (307,841) (8,001,621) (8,544) (71,465) (119,646,195) 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 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 168 N OTE 23. OTHER I N COME AN D E XPENSES 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 forward contracts and swaps Services - projects and inspections Penalties charged to contractors and suppliers CDEC-SING power settlement gain (3) Public lighting and telephone lines Transportation and gas service income (San Isidro) Cost recoveries Reversal of contingencies provision and other provisions Recoverable taxes Effect of application of BT 64 (1) Gain on sale of subsidiaries (2) Indemnities and commissions Dividend from investees Other - Year ended December 31, 2003 2004 ThCh$ ThCh$ 1,143,798 7,717,776 8,068,307 7,148,008 6,915,462 3,258,908 7,731,202 12,047,772 13,220,912 878,765 2,063,984 44,040,053 2,641,508 8,551,458 9,260,211 7,466,011 1,644,945 12,296,555 - 5,871,416 6,713,863 5,207,602 20,169,663 91,517,236 3,681,189 4,395,484 12,116,692 - 7,656,664 1,961,425 13,452,664 Total 195,206,651 133,632,882 (1) These amounts correspond to the net adjustments related to the translation of financial statements of foreign affiliates from the respective local country currency to US Dollars. (2) Sale of Compañía Eléctrica del Rio Maipo S.A. and Infraestructura 2000 S.A. (3) The amount recorded in 2004 corresponds to the result of re-liquidations of balances of power on a firm basis corresponding to 2000 April – 2004 March period (See Note 35). The amount recorded in 2003 corresponds to interim re-liquidations of Energy and Power for transactions carried out in prior years. b) Other non-operating expenses are as follows: Adjustments to investments in related companies Cost of sales – materials Loss on sale of fixed assets Effect of application of BT 64 (1) Contingencies and litigation SIC power settlement loss Pension plan expense Index UFIR Brasil Cerj Penalties and fines Cost of projects, inspections and other Other taxes Colombia Other taxes Argentina and Brazil Loss on forward contracts and swaps Write-off fixed assets Others Year ended December 31, 2003 2004 ThCh$ ThCh$ 8,392,787 3,218,384 9,631,969 89,369,131 54,298,359 2,743,676 21,310,188 7,000,397 4,474,469 4,191,139 1,909,123 841,148 1,287,967 65,499,071 35,399,348 25,696,096 5,127,753 1,759,059 7,525,875 2,829,797 4,487,955 6,902,111 13,326,522 20,830,282 13,933,392 - 9,833,886 1,171,257 16,029,887 20,372,871 Total 252,038,400 207,355,499 (1) These amounts correspond to the net adjustments related to the translation of financial statements of foreign affiliates from the respective local country currency to US Dollars. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 24. PRICE-LE VEL 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 169 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. Year ended December 31, 2003 ThCh$ 332,650 9,875,155 12,805 2004 ThCh$ 2,607,088 5,081,800 2,249,081 23,951,380 53,701,497 1,806,586 2,040,182 6,415,892 34,323,162 70,973 (67,762) 3,039,752 4,505,287 17,229,094 97,268,124 2,850,718 1,128,728 78,761,023 189,661,169 (7,113,470) (63,692,887) (51,656,918) (81,481,325) (1,448,020) (24,293,995) (7,809,611) (14,889,909) I.P.C. - U.F. (16,067,616) (218,476) I.P.C. U.F. I.P.C. (95,620) (74,620) 892,976 - (32,896) (5,828,559) Net charge-liabilities and shareholders’ equity accounts (83,372,899) (190,438,047) Net credits (charge) to income (4,611,876) (776,878) 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 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 170 N OTE 25. E XCHAN GE D IFFEREN CES 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 Currency US$ Euro Other US$ Other US$ Other US$ Euro Other US$ US$ Other US$ Liabilities Currency Year ended December, 31 2004 ThCh$ 2003 ThCh$ 2,921,829 (1,562) (244,829) (26,806,295) (7,095) 333,168 - (6,260) (6,131,516) 3,637 Short-term debt due to banks and financial institutions Current portion of long-term debt due to banks and financial institutions (173,259) (20,035) (469,991) 33,656 (48,731) (9,088) (68,628) (52,570) - (380,587) Current portion of bonds payable Current portion of bonds payable Current portion of notes payable Accounts payable (64,208) 2,605,509 (1,389) (82,475) 6,594 (5,402,853) (126,401) (10,432,016) Year ended December, 31 2003 ThCh$ 6,819,881 (3) 7,559,303 57,473 171,411 89,379 13,663,068 2,304,677 112,790 (47,008) 442,993 1,358,404 656,381 (999) 19,840 794,511 647,006 46 2004 ThCh$ (624,260) - 2,222,240 14,655 (100,925) 1,206 213,448 518,049 75,120 1,929 725 817,379 184,185 1,748 (9,915) 77,793 - 49 111,386,102 40,257 1,033 14,394 114,398,645 6,121,987 (177,377) 11,123,478 (9,481,659) 19,693,149 3,748 450 905,122 44,375,245 1,554,147 1,679,494 (2,823,908) - US$ Other US$ Yen Other Euro US$ US$ US$ Euro Other US$ US$ Other US$ US$ Other Other US$ Yen Euro Other US$ US$ US$ US$ US$ 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 Non-current assets Long-term receivables Amounts due from related companies Other assets Forward contracts and swaps US$ Other US$ US$ US$ (12,688,930) (228,007) (29,633,969) (209,371,894) - (4,288,417) 7,077 - (32,823,991) 4,997,759 Total gain (loss) (274,281,675) (54,374,092) Total gain (loss) 268,076,013 68,780,873 Exchange difference - net loss (6,205,662) 14,406,781 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 26. SHARE ISSUAN CE COSTS N OTE 27. C ASH FLOW STATEMENT 171 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 aa) and break down as follows: a) Other financing disbursements: Appraisal services Printing costs Legal cost Financial adviser DCV commissions Bank commissions Risk classification services As of December 31 2003 ThCh$ 77,209 14,303 204,989 10,637,039 3,065 1,485,095 143,103 2004 ThCh$ 77,209 14,303 204,989 10,734,121 3,065 1,968,639 143,103 Commissions on debt refinancing Forward contract payments Collar and collateral derivative contracts premiums Payments to Siemens A.G. Germany Payments to Santander Leasing Others Total Total 12,564,803 13,145,429 b) Other receipts investment: As of December 31 2003 ThCh$ 2004 ThCh$ 58,618,168 4,650,978 41,837,045 27,554,783 5,595,667 4,668,952 - - - 2,008,445 8,211,550 154,412 118,931,382 34,368,618 As of December 31 2003 ThCh$ 2004 ThCh$ During the current fiscal year expenses for bank commissions have been recorded for ThCh$469,460, and expenses for financial consulting for ThCh$94,254 regarding capital increase. b) Expenses incurred for issuing and placing debt instruments incurred each year in placing bonds are as follows: Taxes Commissions Financial adviser Insurance issue Others As of December 31 2003 ThCh$ 2,231,224 2,660,768 874,661 - 56,775 2004 ThCh$ - - 381,109 93,708 Total 5,823,428 474,817 Receipts from loans granted to Infraestructura 2000 49,096,825 1,760,516 Capital return Payments from OHL Others Total 1,260,879 - - 38,552,256 675,341 261,588 51,033,045 40,574,360 c) Non-Cash Financing Transactions Capital increase On June 2, 2003 Elesur S.A. capitalized the loan 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 22a). In November 2003 there was a voluntary exchange of bonds in connection with the capital increase of Enersis. Holders converted ThCh$63,656,587 into 893.612.466 first issue shares; this operation did not generate any cash flow. Details of this transaction are referred to in Note 22a). C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 172 N OTE 28. FI NANCIAL D ERIVATIVES As of December 31, 2004 the Company and its subsidiaries held the following financial derivative contracts with financial institutions with the objective of decreasing exposure to interest rate and foreign currency risk, as follows: Type Type Nominal derivative contract amount Date of maturity FR FR FR FR FR OE OE S S S S S S S S S S (1) S (1) US$ 3,252,177 I quarter 05 Exchange rate 78,000,000 I quarter 05 Exchange rate 3,627,103 II quarter 05 Exchange rate 1,414,572 III quarter 05 Exchange rate 1,142,676 IV quarter 05 Exchange rate 123,000,000 I quarter 06 Interest rate 500,000,000 II quarter 06 Interest rate 5,000,000 III quarter 05 Interest rate 3,297,340 I quarter 05 Exchange rate 12,230,000 III quarter 05 Exchange rate 100,000,000 IV quarter 06 Exchange rate 10,000,000 IV quarter 07 Exchange rate 350,000,000 I quarter 14 Exchange rate 250,000,000 IV quarter 16 Exchange rate 50,000,000 II quarter 06 Exchange rate 3,807,000 III quarter 08 Exchange rate 50,000,000 III quarter 06 Exchange rate 50,000,000 III quarter 06 Exchange rate CCTE CCPE CCTE CCTE CCTE CCTE CCTE CCPE CCPE CCPE CCPE CCPE CCPE CCPE CCTE CCTE CI CI P/S P P/S P/S S P/S P/S P P P P P P P P P S S (1) Fr = Forward, S = Swap Sale / Amount Assets/Liabilities Income Accounts Item Purchase Hedged item Amount Hedged item Account ThCh$ ThCh$ Amount ThCh$ Realized Unrealized ThCh$ ThCh$ Bank obligations 2,005,638 2,005,638 - Bonds 43,477,200 43,477,200 Other liabilities s/t (152,911) Bank obligations 2,243,331 2,243,331 Bank obligations 874,947 874,947 Bank obligations 708,394 708,394 - - - - - - - - - 222,775 - - - Bank obligations 68,560,200 68,560,200 Other liabilities s/t other assets l/t (312,040) 957,269 83,857 Bank obligations 278,700,000 278,700,000 Other liabilities s/t other assets l/t (2,293,644) (2,793,325) (254,871) Bank obligations 2,787,000 2,787,000 Other liabilities s/t Bank obligations 1,837,937 1,837,937 Other liabilities s/t Bank obligations 6,817,002 6,817,002 Other liabilities s/t 40,594 (189,432) (814,873) - - - 37,986 (190,216) (818,416) Bonds 55,740,000 55,740,000 Other liabilities l/t (7,238,283) 341,449 (7,238,283) Bank obligations 5,574,000 5,574,000 Other liabilities s/t (490,392) - (319,440) Bonds Bonds 195,090,000 195,090,000 139,350,000 139,350,000 Other liabilities l/t Other liabilities l/t (15,541,547) 859,202 (15,541,547) (522,520) 785,315 (522,520) Bank obligations 27,870,000 27,870,000 Other liabilities l/t Bank obligations 2,122,022 2,122,022 Other liabilities l/t Other liabilities l/t Other liabilities s/t (264,903) (414,821) (1,191,862) - - - (3,576,016) (427,587) 3,756,841 - 566,672 373,124 N OTE 29. COM M ITMENTS AN D CO NTI N GENCIES Collateral held by third parties: Guarantee Creditors banks Director Customs Office of Chile Mitsubishi Corp. Banco Estado Subsidiary Pangue S.A. Pangue S.A. San Isidro S.A. Tunel el Melón S.A. Mortgage and pledge Real Estate, properties Bill of exchange Chattel mortgage Facilities Pledge over 45% of income Soc. de Energía de la República Argentina Endesa Argentina, Central Costanera Pledge Mitsubishi J.P. Morgan e Ing Barings Central Costanera S.A. Central Costanera S.A. Banco Santander Central Hispano Cono Sur S.A. (Cien) Pledge Pledge Pledge Shares Facilities Facilities Shares Miscellaneous payables Endesa (Parent) Bank bond Syndicated loan Citibank N.A. Pehuenche, Pangue, Celta Financial guarantee Guarantees of subsidiary obligations (1): Commited assets Balance payable of related debt Release of guarantees Type Currency Book value of at December 31, Type guarantee collateral Currency 2003 2004 2005 2006 2007 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 88,395,344 50,166 84,094,299 1,481,546 85,461,842 20,605,136 28,984,800 52,829,062 - - ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 14,709,718 13,763,815 3,228,325 2,222,587 2,222,587 54,778 50,166 34,654,484 25,394,018 5,873,124 4,407,491 11,978,742 9,725,655 12,939,793 20,605,136 47,599,342 15,424,717 92,284,033 73,848,366 1,342,066 214,539 172,855,180 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Committed assets Balance payable of related debt Release of guarantees Type Currency Accounting at December 31 Guarantee Subsidiary Relation Value Currency 2003 2004 2005 2006 2007 2008 J.P. Morgan & Co. Y C.S.F.B. Endesa Chile Internacional Subsidiary Guarantor ThCh$ 83,610,000 ThCh$ 92,940,092 83,610,000 - 83,610,000 Mitsubishi Co. Cía. Eléctrica San Isidro S.A. Subsidiary Guarantor ThCh$ 25,394,018 ThCh$ 34,654,483 25,394,018 Banco Español de Crédito Cía. Eléctrica Tarapacá S.A. Subsidiary Guarantor ThCh$ 16,082,048 ThCh$ 22,573,634 16,082,048 ABN Bank Cía. Eléctrica Tarapacá S.A. Subsidiary Guarantor ThCh$ - ThCh$ 1,802,879 - Banco Santander Central Hispano Cía. Eléctrica Conosur S.A. Subsidiary Guarantor ThCh$ 73,848,366 ThCh$ 92,284,033 73,848,366 - - - - - - - - - - - 25,394,018 - 16,082,048 - - - 73,843,366 (1) Unless otherwise stated, the guarantees in the table “Guarantees of Subsidiary Obligations” were provided by a subsidiary of the Company (the “Guarantor”) to a third party creditor that had entered into a new obligation with another subsidiary (the “Subsidiary Debtor”). If the Subsidiary Debtor is unable to meet the requirements of the related obligation, the Guarantor will be required to make future payments on behalf of the Subsidiary Debtor up to the remaining amount payable. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 173 Litigation and other legal actions: Enersis S.A. Plaintiff : : Defendant Court : Case/Identification : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A., Elesur S.A. The Republic of Argentina CIADI Arbitration Panel (CIADI Case # ARB/03/21) Compensation for losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation in the power distribution concessionaire Edesur S.A. on the grounds of violation of the Investment Protection and Promotion Agreement entered into by the Republics of Chile and Argentina, and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Granting Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Granting Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Granting Contract, therefore being harmful to the investment the Plaintiff companies have made. Agreement entered into by the Republics of Chile, and Argentina and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Granting Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Granting Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Granting Contract, therefore being harmful to the investment the Plaintiff companies have made. Amount claimed by Chilectra S.A.: US$624,238,650. Plaintiff Defendant : : Court : Case/Identification : Soto Fernandez, Magali Chilectra S.A. and Ingeniería Eléctrica Azeta Ltda. 22nd Civil Court of Santiago 2907-2001 Process status: On october 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 7, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. Lack of jurisdicyion of the Arbitration Court had been processed on the request of the Republic of Argentina. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. Lack of jurisdiction of the Arbitration Court had been processed on the request of the Republic of Argentina. Process status: Out-of-court agreement. The Plaintiffs were paid a total amount of Ch$475,000,000. They abandoned the procedure and the lawsuit ended. LAWSUIT SETTLED Amount involved: US$574,739,500. Chilectra S.A. Amount US$15,800,000. Elesur S.A. Plaintiff : : Defendant : Court Case/Identification : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A., Elesur S.A. The Republic of Argentina CIADI Arbitration Panel CIADI Case ARB/03/21 Plaintiff : : Defendant Court : Case/Identification : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A., Elesur S.A. The Republic of Argentina CIADI Arbitration Panel (CIADI Case ARB/03/21) Compensation of losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation in the power distribution concessionaire Edesur S.A. on the grounds of non-fulfillment of the Investment Protection and Promotion Summary of proceedings: Compensation of losses caused to the Plaintiff’s investment in the Republic of Argentina is requested in connection with the participation in the power distribution concessionaire Edesur S.A. on the grounds of non-fulfillment of the Investment Protection and Promotion Agreement entered 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 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 174 into by the Republics of Chile and Argentina, and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Granting Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Granting Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$1 = $1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Granting Contract, therefore being harmful to the investment the Plaintiff companies have made. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. Lack of jurisdiction of the Arbitration Court is being processed on the request of the Republic of Argentina. Amount: US$98,731,260. Edesur S.A. Plaintiff Defendant Court Case/Identification : : Asociación Coordinadora de Usuarios Consumidores y Contribuyentes – Ente Nacional Regulador de la Electricidad (ENRE). Edesur S.A. : : N°2 Federal Civil and Commercial First Instance Court, Registry of the Court N° 6, La Plata 38676/03 Summary of proceedings: The said institution filed a measure through which it expects ENRE and EDESUR to be ordered to suspend of cabling works in Quilmes, Province of Buenos Aires, as well as the company’s “Sobral” sub-station due to the damage the installations may cause to the population health. Process status: A Resolution from La Plata Civil and Commercial Federal Chamber of Appeal instructs that the First Instance Judge must order EDESUR to report on the situation regarding electromagnetic fields in connection with other sub-stations. Also, the company must report regarding use of PCB, adjust the equipment containing it, as well as the storage locations. Finally, the company must identify the equipment and containers. The case file passed to first instance for the above mentioned purposes, but EDESUR has not been notified yet on the said requirement. Amount: Undeterminable Plaintiff Defendant Court : : : Edesur S.A. Transportes Metropolitanos Gral. Roca. First Instance National Commercial Court, Registry of the Court N° 1 Case/Identification : 87934/03 Summary of proceedings : Edesur promoted an action to declare settlements in public proper ty free-of-charge, taking into consideration that the company Transportes Metropolitanos General Roca S.A. (T.M.R.) intends to charge an annual rent for every crossing or power line wiring along the rails (existing or future) over land designated as railroad service property. Process status: Edesur obtained from the corresponding Court a precautionary measure through which the company is not obliged to pay rent while the procedure is pending resolution. Taking into consideration that the company Transportes Metropolitanos General Roca S.A. attended in caution and, since this is a procedure related to property, the proceedings were brought to the Commercial Court, where the process still continues. Amount: Undeterminable Plaintiff Defendant Edesur S.A. : : Dirección de Vialidad of the Buenos Aires : Court Case/Identification : Province. The National Supreme Court of Justice E 213/01 Summary of proceedings: Edesur wants prevalence and application of the rights established in its Contract to be declared precedent over the provincial regulations. Process status: A favorable ruling was obtained from the National Attorney’s General Office, and the procedure is about to be ruled upon by the Supreme Court of Justice. Amount: Undeterminable Plaintiff Defendant Court Case/Identification : Edesur S.A. : : Buenos Aires City Government (“GCBA”) : N° 7 Administrative and Tax Court of Buenos Aires City, Registry of the Court N° 13 2955/00 Summary of proceedings: The provision through which the Buenos Aires City Government tries to charge an annual rent for each underground transformation center installed by Edesur in public roads is contested. At the same time, the provision tries to force Edesur to cover the costs resulting from the removal of the said centers A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 175 whenever removal is necessary. The contested provision violates the Granting Contract. Case/Identification : National Court, Registry of the Court N° 5. 1856/97 Process status: First instance favorable ruling was appealed against by the. Parallel to the main procedure, Edesur filed an extraordinary appeal to the Supreme Court sustaining the lack of competence of the Buenos Aires City Courts and the competence of federal courts. The Supreme Court of Justice ruled in favor and determined that the Federal Administrative Court is competent to continue with the lawsuit. Therefore, the proceedings are being transferred procedure to the latter Court. Summary of proceedings: In accordance with a provision in Power Law 24065, the power sector concessionaire companies must pay a significant rate to the Power Regulating National Agency with the purpose of financing its controlling and regulating activities (the rate is paid by EDESUR, among other concessionaires.) Process status: First instance sentence was pronounced in favor of the company. The counterparty appealed against the sentence. Amount: Undeterminable Amount: Undeterminable. Plaintiff Defendant Court Case/Identification : Edesur S.A. : : Buenos Aires City Government (GCBA) : N° 7 Administrative and Tax Court of the City of Buenos Aires, Registry of the Court N° 13. 2956/01 Summary of Proceedings: To contest a GCBA provision through which payment of procedure expenses on permits requested by Edesur for the installation of its lines is demanded, as well as payment for the corresponding inspections carried out by the GCBA, in addition to a rent for using public roads with power systems for the provision of power distribution public utilities. Process status: Submission of trial briefings. Proceedings were transferred to the Federal Administrative Court where the procedure continues. Amount: Undeterminable Defendant Court Edesur S.A. : : N° 11 Federal Administrative First Instance Case/Identification : National Court, Registry of the Court N° 21. 142321/02 Summary of proceedings: The Users and Consumers Union wants a modification of the type of rate applied to the many condominium owners consortiums existing in the City of Buenos Aires and EDESUR users. This would imply an important reduction of the values to be invoiced in future to these consortiums, as well as the obligation for retrospective reimbursement of “unduly” received amounts. Process status: Evidence stage. The accounting expert evidence stage ended. Its transfer was ordered. Compañía de Electricidade do Rio de Janeiro S.A. Plaintiff : Meridional S/A Servicios, Emprendimientos Defendant Court y Participaciones. Compañía de Electricidade do Rio de Janeiro S.A. : : 9ª Vara de Hacienda Pública de Río de Case/Identification : 98.001.048296-8 Janeiro Summary of proceedings: Mistral and Civel, represented by Meridional, filed disputes to be creditors of the old power distribution state company CELF on the grounds of works contracts entered into with the said company. In its representation, Meridional demands payment of certain collectable invoices and contract fines due to the above mentioned work contracts termination for an amount of R$136,085,827.20. Process status: The procedure had been suspended until appeals against other actions of the same nature filed by CIVEL AND MISTRAL against CELF are solved (discussion on the contract anticipated termination validity), which were won by CELF. These actions are not included herein because the Compañía de Electricidade do Rio de Janeiro S.A. is not part of them. This was due to the fact that the Court considers it necessary to examine the effect the final decision on the said actions may have on the case we are facing. Amount: US$106,808,116.73. Plaintiff : Defendant Court Case/Identification : 766 Cibrapel S/A Industria de Papel y Embalajes. Compañía de Electricidade do Rio de Janeiro S.A. : : Vara Única de Guapimirim Amount: Undeterminable Plaintiff Defendant Court Edesur S.A. : : Secretaría de Energía de la Nación. : N° 3 Federal Administrative First Instance Summary of proceedings: 1) To sentence Compañía de Electricidade do Rio de Janeiro S.A. to indemnify for material and moral losses resulting form the poor quality of the services provided by Compañía de Electricidade do Rio de Janeiro S.A. between 1991 and 1998. 2) To sentence the Compañía de Electricidade do Rio de Janeiro S.A. 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 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 176 to reimburse the amounts paid due to a rate increase based on administrative resolutions (portarías) 38 and 45 of 1986, which are considered illegal by the Government and the Courts. Process status: Compañía de Electricidade do Rio de Janeiro S.A. protested and, as an expert’s appraisal is necessary to verify the alleged indemnities due to power blackouts, the expert’s appraisal production stage was started. Amount: US$18.206.065, 95. Plaintiff : ABRACON - Associação Brasileira do Defendant Court Case/Identification : Consumidor. Compañía de Electricidade do Rio de Janeiro S.A. : : 4ª Vara Civil de São Gonçalo/RJ 2000.004.012307-7 Summary of proceedings: Contesting of the constitutionality of the “public lighting rate” (TIP), charged by Compañía de Electricidade do Rio de Janeiro S.A. in its invoices. Compañía de Electricidade do Rio de Janeiro S.A. argues that it is just a collector of the rate, lacking passive legitimacy. Process status: The ruling declared the Compañía de Electricidade do Rio de Janeiro S.A. passive illegitimacy and accepted the defense preliminarily. Due to this sentence, on 5/28/04 the Attorney’s General Office filed an appeal and we are waiting for the date the trial will take place. Amount: US$7,089,062.82. Plaintiff : Núcleo de Defesa do Consumidor- Defendant : NUDECON. Compañía de Electricidade do Rio de Janeiro S.A. y LIGHT. Court Case/Identification : 1999.001.168990-1. : 8ª Vara Empresarial do Rio de Janeiro. Summary of proceedings: 1) The tax immunity declaration of Compañía de Electricidade do Rio de Janeiro S.A. regarding the tax called COFINS; and 2) The Unión Federal sentence to reimburse payments for COFINS during the last five years, corrected and increased with the legal charges based on the decision processed in Court and contained in Security Order N° 92.0113589-4. Amount: U$10,730,000. Plaintiff Defendant Court Case/Identification : Annulment Action N° 97.02.09655-3. Compañía de Electricidade do Rio de Janeiro S.A. TRF First Section : Unión Federal : : Summary of proceedings: The Unión Federal filed an annulment action against Compañía de Electricidade do Rio de Janeiro S.A. to the Second Region TRF with the purpose of annulling the ruling (Security Order Nº 92.0113489-4) that recognized its tax immunity regarding the COFINS withholding. Process status: On 02/19/2003, members of the TRF – 2nd Region special agency unanimously rejected the appeal of Unión Federal/ Hacienda Nacional, a ruling that was appealed against. This last appeal is pending. Amount: US$121,496,000. Compañía de Electricidade do Rio de Janeiro S.A. Plaintiff Defendant Court Case/Identification : Ordinary Action 96.0035652-1. : : Unión Federal : 2ª Vara Federal de Niterói. Summary of proceedings : Compañía de Electricidade do Rio de Janeiro S.A. wants tax immunity to be declared regarding its collection of tax called PIS, and Unión be sentenced to reimburse the total amounts collected during the last five years, starting from August, 1996, based on § 3 of article 155 of the Federal Constitution. Summary of proceedings: Collective civil lawsuit filed on December 13, 1999, with the purpose of preventing suspension of power supply to consumers in arrears, as well as to consumers in irregular situations (stealing of power.) Process status: Sentence unfavorable to Compañía de Electricidade do Rio de Janeiro S.A. in first instance. Appeal to the Federal Regional Court pending. Amount: Undeterminable. Amount: U$21,806,000. Compañía de Electricidade do Rio de Janeiro S.A. Plaintiff Defendant Court Case/Identification : Ordinary Action 96.0035653-0 : : Unión Federal : 2ª Vara Federal Plaintiff Defendant Court A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Compañía de Electricidade do Rio de Janeiro S.A. : : Unión Federal : 2ª Vara Federal de Niterói. Case/Identification : Preventative Action 96.0034797-2 Summary of proceedings : Preventative action in lawsuit by Compañía de Electricidade do Rio de Janeiro S.A. based on § 3 of article 155 of the Federal Constitution with the purpose of suspending the tax credit suit regarding the tax called PIS which is deposited under regulation periodically. Process status: The sentence was not appealed against by the defendant. Therefore, the authorization to continue with the legal deposits was maintained. Taking into consideration the lawsuit procedures from the petition, the possibility of swing the ruling for provisional execution and the list of legally deposited values is being studied. Amount: U$21,806,000. Plaintiff Defendant Court : : Unión Federal : Compañía de Electricidade do Rio de Janeiro S.A. 4a Vara Federal de Niterói y 2ª Vara Federal de Niteroi Case/Identification : Ordinary Action 96.0035652-1 and Ordinary Action 96.0035387-5. Summary of proceedings: Compañía de Electricidade do Rio de Janeiro S.A. wants to obtain the declaration of non-existence of a legal-tax relation (tax immunity) regarding payment of the tax called FINSOCIAL and affecting its gross monthly income. Also, the company wants the Unión to be sentenced to fully reimburse the amounts collected during the last five years, from October 1996 and, therefore, the Unión to be sentenced to pay the difference between the payment value according to Laws 7,787/89, 7,894/89, and 8,147/90, and the amount owed according to Decree-Law 1,940/82, during the above mentioned period. Process status: The Compañía de Electricidade do Rio de Janeiro S.A. and Unión Federal filed and appeal against the first instance sentence. Court records were sent to the Federal Regional Court. Hearing before the said Court is pending. Amount: U$7,269,000. Compañía de Electricidade do Rio de Janeiro S.A. Plaintiff Defendant Court : : Unión Federal : 3rd Group – Federal Regional Court of the 2nd Region and 2ª Vara Federal de Niteroi Case/Identification : Ordinary Action 96.0035652-1 and Appeal against Security Order 2000.02.01.055412-5 177 application of the 30% taxable profit limit imposed by the Unión Federal for the calculation of the IRPJ base and the CSLL negative calculation bases recorded until 12/31/1994 (excluding 1993.) Process status: First instance sentence fully favorable to the Compañía de Electricidade do Rio de Janeiro S.A. interests. Hearing of the appeal filed by the Unión Federal to the Federal Regional Court pending since 08/07/01. Amount: Undeterminable. Compañía de Electricidade do Rio de Janeiro S.A. Plaintiff Defendant Court : : Unión Federal : 5th Group – Federal Regional Court of the 2nd Region and 2ª Vara Federal de Niterói. Case/Identification : Ordinary Action 96.0035652-1 Appeal against Security Order 1998.51.02.207129-6 Summary of proceedings: It is the same as the previous lawsuit, but for fiscal years are 1993, 1995, and 1996, with profit generated in 1998 and after. Process status: First instance sentence fully favorable to the Compañía de Electricidade do Rio de Janeiro S.A. interests. Hearing of the appeal to the Federal Regional Court of the 2nd Region pending since 10/07/03. Amount: Undeterminable. Compañía de Electricidade do Rio de Janeiro S.A. : : Unión Federal : Plaintiff Defendant Court Case/Identification : Ordinary Action 96.0035652-1 Lawsuit 98.0207203-6 2ª Vara Federal de Niteroi Summary of proceedings: This is a preventative constitutional action (“Mandado de Segurança”) with the purpose of ensuring the company the right to immediately and fully deduct the 1990 balance sheet indexing difference effects over devaluation, depreciation, and disposal of fixed assets for determining the calculation base for the Social Contribution over Profits – CSL. (Law 7,689/88) on the 1988 and following calendar years. Process status: On 05/19/1998 sentence was pronounced only partially accepting the Compañía de Electricidade do Rio de Janeiro S.A. allegations. We are waiting for the publication of the ruling rejecting an appeal for reconsideration. After this it is possible to resort to higher courts. Summary of proceedings: This is a preventative constitutional action (“Mandado de Segurança Preventivo”) aimed to prevent the Amount: U$20,000,000. Plaintiff : Compañía de Electricidade do Rio de Janeiro S.A. 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 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 178 Defendant : INSS – Instituto Nacional de Seguridad Social and FNDE – Fondo Nacional de Desarrollo de la Educación. : 8ª Vara Federal de Niterói. Lawsuit 2000.51.01.011750-5. Court Case/Identification : Summary of proceedings: Declaration of unconstitutionality of values collected as education wages by the Instituto Nacional de Seguridad Social and the Fondo Nacional de Desarrollo de la Educación during the May 1977 to April 1988 period is requested, and the resulting recognition of the Compañía de Electricidade do Rio de Janeiro S.A. right to credit the said values with contributions about to expire and collected by the INSS for future compensations. The said payment is said to be a tax in nature and a violation of tax legality and compliance. Process status: Sentence partially accepted; appeals were filed to the Federal Regional Court of the 2nd Region; their solution is pending. Amount: U$15,356,150. Plaintiff Defendant : : Compañía de Electricidade do Rio de Janeiro S.A. Fondo Nacional del Desarrollo de la Educación – FNDE, Instituto Nacional del Seguro Social – INSS and State of Río de Janeiro Court Case/Identification : : Vara Federal de Niterói. Lawsuit 98.0203718-4 Summary of proceedings: This is a action with the purpose of declaring unconstitutional the contribution called “Salario Educación” this obtaining the reimbursement of values collected by the defendant between 07/14/88 and 05/04/98. Process status: The tutelary action was not accepted and an appeal “Agravo de Instrumento” was filed (interlocutory sentence appeal.) The appeal has been pending in the Federal Regional Court since /05/24/02. Amount: U$11,685,150. Plaintiff Defendant Court : : : Case/Identification : Compañía de Electricidade do Rio de Janeiro S.A. Superintendente Estadual de Fiscalización de la Secretaría de Estado de Hacienda and Inspector de la Inspectoría de Fiscalización Estadual – Contribuyentes de Grande Porte 11ª Vara de Hacienda Pública of the Rio de Janeiro State Lawsuit 1999.200.013.062-7 (2946/1) Summary of proceedings: This is a preventative constitutional action (“mandado de segurança preventivo”) aimed to prevent the limitation imposed by article 2 of Law 3,188/99 that restricted the right to use the credit resulting from the tax called ICMS in connection with the purchase of fixed assets goods. Process status: On 12/14/1999 sentence was pronounced and the petition was accepted to declare the possibility for Compañía de Electricidade do Rio de Janeiro S.A. to fully use credits resulting from the ICMS for the purchase of fixed assets. Currently, the petition “Agravo de Instrumento” filed by the Rio de Janeiro State to the Federal Supreme Court is pending. Amount: U$14,805,300. : Plaintiff : Defendant : Court Case/Identification : Secretaría de la Receta Federal. Compañía de Electricidade do Rio de Janeiro S.A. Taxpayers Council of the Ministry of Finance. Infringement Procedure 0710200/00370/02 and Administrative Lawsuit 10730.002730/2003-13. Summary of proceedings: Tax infringement for a supposedly unpaid difference corresponding to tax called COFINS. During the mandatory verification procedures, differences between the declared values, the registered values, and the collected values and those paid in connection with COFINS were verified for the 12/2001 to 06/2002 period. Process status: On 08/11/2003, Compañía de Electricidade do Rio de Janeiro S.A. filed its contest to the Infringement procedure, which was accepted by the Comisaría de la Receta Federal de Juzgamiento de Niterói/RJ. Currently, the procedures are at the Comisario de la Receta Federal de Niterói/RJ waiting to be sent to the Taxpayers Council of the Ministry of Finance for the Voluntary Appeal ruling. Amount: US$32,870,000. Plaintiff : Defendant Court Case/Identification : Engineers Union of the Rio de Janeiro State in representation of 133 employees Compañía de Electricidade do Rio de Janeiro S.A. : : Vara do Trabajo de Niterói Enforcement Action 628/1993 Summary of proceedings: In Collective Agreements 263/84 and 282/85, effective from November 1984 to October 1985, and from October 1985 to November 1986, respectively, wage adjustment, 4% productivity payment, and 4% semi-annual readjustment clauses were established. These are financial clauses that determine a salary adjustment for engineers in a percentage determined in the collective agreements, in addition to a productivity bonus, and semi-annual salary readjustment. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Process status: It is at credit settlement stage against Compañía de Electricidade do Rio de Janeiro S.A. Waiting for the ruling on the appeal for reconsideration filed by Compañía de Electricidade do Rio de Janeiro S.A. against the temporary settlement before the Brasilia Labor Court. Amount: US$11,262,798.63. : Plaintiff : Defendant : Court Case/Identification : Secretaría de la Receta Federal. Compañía de Electricidade do Rio de Janeiro S.A. Taxpayers Board of the Ministry of Finance. Infringement Action 0710200/00370/02 and Administrative Lawsuit 10730.002674/2003-17. Summary of proceedings: Tax infringement due to supposedly unpaid difference of tax called IRPJ. The Infringement Action results from the improper compensation of fiscal losses, taking into consideration that the 30% compensation limit, adjusted by additions and exclusions provided and authorized by the income tax legislation on net profits was not observed. On the contrary, the company compensated the total of its real profit under Security Order 98.0207129-3, under procedure at the 1st Vara Federal of the Rio de Janeiro Judicial Section in Niterói. Process status : On 08/08/2003, the Compañía de Electricidade do Rio de Janeiro S.A. filed an appeal against the Infringement Action that was partially accepted, to maintain the fiscal lawsuit in the remaining value of R$18,265,719.04, in addition to the arrears charges. Because of this, on 07/27/2004, Compañía de Electricidade do Rio de Janeiro S.A. filed a petition requesting to register in the Secretaría de la Receta Federal information systems the suspension of the IRPJ remaining balance demand, on the grounds of the ruling contained in the Security Order 98.0207129-3. However, the lawsuit proceedings are currently at the First Taxpayers Board of the Ministry of Finance waiting for the ruling on the Official Appeal filed by the Receta Federal. Amount: US$6,750,000. Plaintiff Defendant Court Case/Identification : : : : Secretaría de la Receta Federal. Compañía de Electricidade do Rio de Janeiro S.A. Comisaría de la Receta Federal de Juzgamiento. Infringement Action 00218 and Administrative Lawsuit 10730.002007/99-24. 179 Process status: On 06/07/1999, Compañía de Electricidade do Rio de Janeiro S.A. filed its contest of the Infringement Action, which was accepted by the Comisaría de la Receta Federal de Juzgamiento. On these grounds, Compañía de Electricidade do Rio de Janeiro S.A. filed a Voluntary Appeal partially accepted by the 3rd Cámara of the 2nd Taxpayers Board of the Ministry of Finance, to exclude from the calculation out the debit corresponding to the interest on the payment delay and unduly included in the R$4,305,641.37 value. Currently, the lawsuit proceedings are at the fiscal control and supervision service of the Comisaría de la Receta Federal en Niterói/RJ. Amount: US$6,800,000. : Plaintiff : Defendant Court : Case/Identification : Selma de Souza and other 122 complainants. Compañía de Electricidade do Rio de Janeiro S.A. Segunda Vara del Trabajo de Niterói. Labor Demand 3142/1995. Summary of proceedings: The complainants, discharged from the company, want to be reinstated and be applied a stability guarantee. Process status: Waiting for the ruling on the appeal filed by Compañía de Electricidade do Rio de Janeiro S.A. to the Brasilia Labor Court. Amount: US$21,501,706.48. Coelce S.A. : Plaintiff : Defendant Court : Case/Identification : Inácio Nunes Arruda & Others. Coelce. 2a Vara da Fazenda Pública – Ceará 2002.02.38915-4 Summary of proceedings: People’s action for the annulment of the Coelce sale process. Process status: The process has been suspended for more than a year, and it may be soon dismissed. Amount: Undeterminable. Codensa S.A. Plaintiff Defendant : Henry Patiño and Others. : Codensa, Bogotá Capital District and Empresa de Energía de Bogotá S.A. ESP (EEB) Cundinamarca Administrative Court, Third Section – Sub-section “B”. Case file 03-0680. Summary of proceedings: Tax infringement due to possible unpaid difference on tax called CSL. Court : Case/Identification : 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 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 180 Summary of proceedings: The plaintiffs want: i) Termination of the agreement because it was entered into without compliance with the legal requirements, as the Capital District did not select the contractor through a public bidding; ii) The rate established by Codensa and the Capital District in January, 2002, is illegal and excessive; iii) The payment agreement on debts corresponding to 1998, 1999, and 2000, entered into in 2002, were at an illegal and harmful rate; iv) Amounts collected from 1998 to today are to be re-invoiced deducting the overcharge, which CODENSA should reimburse to the Capital District; and v) Payment of 15% incentive to the plaintiff (US$4 million) and from 10 to 159 person’s minimum wages (US$20,000). Process status: Evidence stage. Amount: US$25,000,000. Plaintiff : Users of the public lighting service in La Defendant Court : : Case/Identification : Calera Municipality. Codensa and La Calera Municipality. Cundinamarca Administrative Court, Second Section – Sub-section “A”. Case file 02-1012. Summary of proceedings: Codensa provides public lighting service to La Calera Municipality and another 90 municipalities in the Cundinamarca Province. With some of them, there is no written contract or authorization from the corresponding agency (Municipal Council and Mayor). The plaintiffs argue that there is no written contract for the service provision and, therefore, they demand reimbursement of the amounts collected. They also argue that the service to rural areas is invoiced although these areas have no public lighting. Process status: Evidence stage. Amount: Undeterminable. Process status: Ruling is pending in the administrative proceeding under the lack of exhaustion exception filed by the Fiscal Court. Amount: US$60,623,123. Endesa S.A. (Parent company) Plaintiff Defendant Court Case/Identification : 4061-2002 : : : Sociedad Punta de Lobos S.A. Endesa, Celta and the Treasury of Chile 30th Civil Court of Santiago Summary of proceedings: The plaintiff demands absolute annulment of assignment and transfer of any other legal transaction by Endesa to Celta regarding real estate forming the maritime lease granted to Endesa in the Punta Patache area, First Region, and its declaration of expiration by the Court. Process status: The parties were summoned for the sentence. Amount: Undeterminable. Plaintiff Defendant : : : Court Case/Identification : Sociedad Punta de Lobos S.A. Endesa, Celta and Puerto Patache S.A. Sea Terminal Eight Civil Court of Santiago 129-2003 Summary of proceedings: The plaintiff requested the defendants mandatory fulfillment of the so-called “Bidding Contract” called by Celta and in which the latter, Endesa, Patache S.A. Sea Terminal, and Punta de Lobos S.A. participated. The plaintiff argues that the contract was not fulfilled. Process status: The sentence rejected the demand. Appeal filed by the plaintiff is pending at the Santiago Court of Appeal. The preventive action prohibiting actions or contracts on Puerto Patache is effective. Amount: Undeterminable. Edelnor S.A. Plaintiff Defendant Court : : : Case/Identification : Edelnor S.A.A. Superintendencia Nacional de Administración Tributaria -SUNAT-. First Court Specialized in Administrative Procedures Case file: 426-2004 Plaintiff Defendant : : Court : Case/Identification : Sociedad Punta de Lobos S.A. Treasury of Chile (ENDESA is third party involved) 21st Civil Court of Santiago 553-2003 Summary of proceedings: Legal procedure requesting partial annulment of Resolution 00100-5-2004 and recognition of the legality of the assets re-evaluation operation carried out by the company in accordance with Law 26283. Summary of proceedings: The plaintiff demanded annulment of Supreme Decree 139 of 2002, issued by the Ministry of Defense, Navy Department, on the grounds that the said Decree was issued in contradiction to the legal provisions regarding its issuance. According to this Decree, the expansion of the Endesa maritime lease was extended for the loading of salt through Puerto Patache, in the First Region. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Process status: The evidence term has expired, and the parties are waiting to be summoned for sentence. Regarding the preventive actions suspending any application of Supreme Decree 139 of 2002, of the Navy Department, ruling on the appeal against the resolution that prevented its annualment is pending. Summary of proceedings: The plaintiff demanded the defendants be ordered to mandatorily fulfill of the so-called “Bidding Contract” called by Celta and in which the latter, Endesa, Patache S.A. Sea terminal, and Punta de Lobos S.A. participated. According to the plaintiff, the contract was not fulfilled. 181 Amount: Undeterminable. Plaintiff Defendant Court : : Maria Elena Teresa Sola Ruedi : Endesa, Minister of Economy, and Superintendent of Electricity and Fuels. Santa Barbara Court of First Instance Process status: Sentence rejected the demand. Jurisdiction on the appeal filed by the plaintiff to the Santiago Court of Appeal pending. The preventive action prohibiting entering into actions or contracts on Puerto Patache continues in effect. Amount: Undeterminable. Summary of proceedings: The demand is to change the easement regime for expropriation, and payment for a larger flooded surface. Regarding subsidy, re-assessment of the indemnity amount paid for the easement is demanded. Amount: Undeterminable. Process status: Summons took place, and the plaintiffs – Endesa and the Treasury- alleged the Court to be incompetent. The Court ordered suspension of the proceedings and accepted the incident on trial. The Treasury filed petitions and was granted appeal regarding the refund. To this date, deducted incidents are pending for ruling. Plaintiff Defendant Court Case/Identification : 4061-2002 : : : Sociedad Punta de Lobos S.A. Endesa, Celta and the Treasury of Chile 30th Civil Court of Santiago Summary of proceedings: The plaintiff demands absolute annulment of assignment and transfer of any other legal transaction by Endesa to Celta regarding real estate forming the maritime lease granted to Endesa in the Punta Patache area, First Region, and its declaration of expiration by the Court. Process status: The parties were summoned for sentence. Amount: Undeterminable. Amount: Undeterminable. Pangue S.A. : Plaintiff : Defendant Court : Case/Identification : Empresa Eléctrica Pangue S.A. Chilectra S.A. 18th Civil Court of Santiago 3886-99 Plaintiff Defendant Court Celta Empresa Constructora Belfi S.A. : : : Arbitration Court (Raúl Varela Morgan) Summary of proceedings: The legal action resulted from differences regarding construction of the Puerto Patache dock, whose concrete is contaminated with chloride. Summary of proceedings: The action demands annulment of the obligation to pay compensation to regulated price users resulting from Power Rationing Decree 287 from the Ministry of Economy. Process status: Summons took place, and proceedings were lodged. The petition has not been filed yet. Process status: Ruling is about to be pronounced on this case. Amount: Undeterminable. Amount: Undeterminable. Compañía Eléctrica de Tarapacá S.A. Plaintiff Defendant : : Court : Case/Identification : Sociedad Punta de Lobos S.A. Endesa, Celta, Minera Puerto Patache S.A. Sea Terminal Eighth Civil Court of Santiago 129-2003 Plaintiff Defendant Court Celta Foster Weehler : : : Arbitration Court (Vasco Costa) Summary of proceedings: The legal action resulted from differences regarding construction of the Tarapacá Plant powerhouse, whose concrete is contaminated with chloride. 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 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 182 Process status: Arbitrator Vasco Costa Ramirez was assigned, notification of his appointment is still pending. before the National Supreme Court of Justice and it includes an initial amount of approximately ThCh$294,469. Amount: Undeterminable. Hidroeléctrica El Chocón S.A. Administración Federal de Ingresos Públicos - Dirección General Impositiva On December 28, 2000, the AFIP - DGI claimed under Corporation Resolution 166/00 (which officially assessed an amount of ThCh$328,256 on income tax corresponding to withholdings on beneficiaries abroad) that the Corporation omitted withholding income tax on certain payments made abroad in order to obtain a bank loan during fiscal year 1994. Also, it ruled that the Corporation must pay ThCh$745,797 as compensation interests calculated to December 20, 2000. The Corporation did not withhold the said amounts considering them income from a foreign source not subject to taxation by the beneficiaries. The Corporation filed its corresponding answer to the charges and rejected the tax adjustment carried out. Finally, the AFIP - DGI decided to apply the Corporation a ThCh$229,779 fine on possible infringement of article 45 of Law 11,683. On February 20, 2001, the Corporation filed an appeal to the National Fiscal Court. On December 28, 2000, the Corporation was notified under Resolution 204/00 that officially been assessed the taxes and charges payables on added value tax for the December 1993 to July 1995 period, that it was to compensate the amounts to be recorded with credit amounts and pay ThCh$148,533 on compensation interest to December 11, 2000. Also, it was ruled to apply to the Corporation a ThCh$195,907 fine on the possible infringement of article 45 of Law 11,683. The AFIP-DGI considers inappropriate Corporation’s determination of when taxability occurred, as it considers provisions in article 18 of the Value Added Tax Law rules and regulations decree applicable. The Corporation rejected the AFIP-DGI intention to apply article 18 of the Value Added Tax Law rules and regulations decree to the taxable facts perfected before the rules and regulations publication date in the Official Gazette. It was alleged that the said regulation is unconstitutional as well as application of decree 493/95 which pertained to the interests and fines on expired obligations or infringements, or committed before July 31, 1995. On February 20, 2001, the Corporation filed an appeal to the National Fiscal Court. Royalties On June 26, 2000, the Corporation was notified of a legal action regarding the collection of interest on royalties supposedly paid out of term. The legal action was started in the Province of Neuquén In addition, on September 27, 2000, the Corporation was notified of a new legal action in the Province of Neuquén against the National State and the hydro-electric plants of Comahue in order to collect royalties on the funds accumulated in the Sales Account. The said legal action does not state amount or date from which the claimed amounts are owed, but the action tries to collect 12% of the funds it understands each generator has contributed to the said account. Dirección Provincial de Rentas of the Buenos Aires Province On September 10, 2001, the Corporation received from the Dirección Provincial de Rentas of the Buenos Aires Province notification on the start of an official assessment for ThCh$324,071 (the amount does not include interests or fines), as taxation on the gross income corresponding to fiscal years from February 1995 to December 1998. The differences claimed result from: a) non-registration of the tax in the Buenos Aires Province between February 1995 and June 1996 regarding the contracts entered into by the Corporation, and b) application of a rate lower than the applicable one. On October 25, 2001, the Corporation entered a ThCh$120,192 debt in the easy payment terms regime provided by Law 12,727. On December 28, 2001, the Dirección Provincial de Rentas notified the Corporation on Resolution 655/01 that (i) determined that the Corporation paid by default the amount of ThCh$184,045 corresponding to the tax on gross income for the fiscal years from February to December 1995, January to December 1996, January to December 1998; and (ii) applied a fine of ten percent of the supposedly unpaid amount to the Corporation. On January 22, 2002, the Corporation filed an appeal reporting that the amount included in the easy payment terms regime had not been considered, and the reasons for which the rate indicated by the Dirección Provincial de Rentas is not applicable. Hidroinvest S.A. On December 27, 2000, the AFIP-DGI notified Hidroinvest S.A. on Resolution 519/00 that officially determined the amount of ThCh$729,283 as income tax for the 1993 fiscal year that Hidroinvest S.A. supposedly should have paid on the difference between the purchase and transfer values of the bonds handed over to the National State on the benefits obtained from the said operation, considering that a debt was paid for an amount larger than the bonds purchase value and ThCh$1,568,687 corresponding to compensation interest. Also, the AFIP-DGI applied Hidroinvest S.A. a ThCh$510,498 fine on an alleged infringement of article 45 of Law 11,683. The agency considered that Hidroinvest S.A. should have paid the tax on the difference between the acquisition and transfer values of the bonds handed to the National State and corresponding to the A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 183 benefits obtained from the operation, considering that a debt for an amount larger than the bonds purchase cost was paid. The Corporation appealed against the resolution of the National Fiscal Court. Sentence was pronounced on May 26, 2004, confirming the Resolution regarding the tax and its interests and annulling the fine applied. In the fist case, Hidroinvest S.A. was sentenced to pay the legal costs. The company and the Treasury appealed against the sentence. This sentence was appealed against to the Federal Administrative National Chamber of Appeal. With the purpose of preventing the start of the fiscal execution of the supposed credit determined by the AFIP-DGI and confirmed by the National Fiscal Court, on July 30, 2004, the Corporation paid the amount of ThCh$729,283 fine and ThCh$2,552,286 on interests, expressly putting on record that it did not agree with the payment resulting from the petition for reconsideration and limited appeal filed against the sentence of the National Fiscal Court. On October 15, 2004, professional fees of the legal representative and the National Treasury attorney were established at ThCh$75,833 and ThCh$252,777, respectively, for their work during the processing of the case file before the National Fiscal Court. On November 2, 2004, an appeal was filed against the regulations, for overcharging. However, it is necessary to highlight that in the petition for reconsideration and limited appeal filed against the National Fiscal Court sentence, an appeal was filed against the payment of legal costs applied to Hidroinvest S.A. in connection with the tax adjustment. For this reason, if the petition is accepted in this point, the regulated professional fees should not be paid by the Corporation. On November 30, 2004, petitions of appeal filed by both parties against the professional fees regulation were granted. The resolution was notified to the parties; therefore, it only remains for the case file to be sent to the Federal Administrative National Chamber of Appeal for consideration of the petitions of appeal. Central Costanera S.A. On July 25, 1990, the Italian Government authorized Medio Credito Centrale to grant the Government of the Republic of Argentina a financial credit of up to US$93,995,562 to finance the purchase of goods and services of Italian origin and used in the restoration of four groups in the steam-electric power plant property of Servicios Eléctricos del Gran Buenos Aires (“SEGBA”). The said credit financed the purchase of goods and services included in Work Order 4322 (the “Order,”) issued by SEGBA to a trust headed by Ansaldo S.p.A. of Italy. According to the terms in the “Agreement on Work Order 4322”: (i) SEGBA mandated Central Costanera S.A. to manage the execution of the services in the Order and executed the work and services that according to the Order corresponded to SEGBA; and (ii) Central Costanera S.A. undertook to pay the National Energy Department (the “Energy Department”) the capital share and interests resulting from the credit granted by Medio Credito Centrale, at a 1.75% annual rate (the “Agreement.”) As a guarantee of fulfillment of the economic obligations undertaken by Central Costanera S.A., the buyers -holder of class “A” shares of Central Costanera S.A.- established a pledge on the total of class “A” shares of their property. If the agreement is not fulfilled and the guarantee is executed, the Energy Department may immediately proceed with the sale of the shares in guarantee through a public bidding, and exercise the political rights corresponding to the pledged shares. Through the application of Law 25,561, Decree 214/02, and its rules and regulations, Central Costanera S.A. payment obligation resulting from the Agreement has been “pesified” to the exchange rate of one peso equal to an American dollar, in addition to the reference stabilization factor (“CER,”) and maintaining the obligation original interest rate. On January 10, 2003, the National Executive Branch issued Decree 53/03 that modified Decree 410/02, incorporating section j) to its article one. Through this regulation, “pesification” is excluded from the obligation applied to provincial states, municipalities, and companies from the public and private sector of providing amounts of money in foreign currency to the National Government when the amounts result from subsidiary or other nature loans and guarantees originally financed by multilateral credit agencies or originated in liabilities assumed by the National Treasury and refinanced with foreign creditors. Central Costanera S.A. considers that the loan resulting from the Agreement does not fit in any of the provisions in Decree 53/03 and, if it did, there are solid reasons that determine that Decree 53/03 is unconstitutional because it openly violates the principle of equality and the property right established in the National Constitution. If the said provisions were complied with, the contingency would imply, to December 31, 2004, decrease of the period net profits of around US$8 million, and an indebtedness increase of around US$20 million. To this date, the Energy Department has not claimed against the “pesified” payments from Central Costanera S.A. To December 31, 2004, the Central Costanera S.A. debt regarding the Agreement and including the interest earned reaches US$20,656,020, while at December 31, 2003, it was US$22,593,478. Edegel S.A. • Edegel / Sunat As a result of the auditing of tax obligations compliance on income tax during the 1995 to 1999 fiscal years, on December 7, 2001, Edegel was notified by SUNAT on resolutions of assessment and fine for MUS$90,290.17. The main objection referred to real estate, 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 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 184 machinery, and equipment devaluation provision for every audited period. virtually matches the amounts provided in the expert’s appraisal that supported the revaluation carried out due to the use of Law 26283 regime. The observation “Fiscal Year Provisions, Real Estate, Machinery, and Equipment Devaluation” corresponding to the 1999 fiscal year meant, in management’s opinion, a violation of the Tax Stability Agreement entered into with the Supreme Government, because SUNAT founds its observation on the Seventh Temporary and Final Provision of Law 27034, which modified the income tax general regime, under the said Agreement. On mutual agreement, the parties submitted the differences to the decision of an arbitration court. On April 22, 2002, the said court ruled declaring Edegel legal action unfounded and the Seventh Temporary and Final provision of Law 27034 non- applicable. Before the arbitral award, on March 19, 2002, through Administration Resolution 015-4-14948, the Administration declared the demand filed by Edegel against the assessment and fine resolutions partially founded, and maintained the most significant observations. This resolution was appealed by Edegel to the Fiscal Court on April 10, 2002. On November 20, 2002, the Fiscal Court issued Resolution 06619- 4-2002, stating that the arbitral award must be respected and, accordingly, the Seventh Temporary and Final Provision of Law 27034 is not applicable to Edegel while its Tax Stability Agreement is in effect. However, the Fiscal Court also declared that Administration Resolution 015-4-14948 is invalid because the administrative procedure was not suspended in the first instance while the arbitration was being solved, and ordered the return of the case file to the Sunat for solution, taking into consideration the arbitral award, and for the ruling taking into consideration the applicable interpretation methods and, if necessary, qualified taxable facts in accordance with Regulation III of the Tax Code Single Text Preliminary Title. On July 10, 2003, Edegel was notified through Administration Resolution 0150150000032, according to which the Tax Administration concluded that tax benefits regulated by Law 26283 and its rules and regulations are not applicable to the company as no real separation occurred in 1996. Also, validity of the assessment that sustained the market value attributed as accounting cost of the goods purchased during the separation process was questioned, because the methodology established in the General Assessment Rules and Regulations was not applied. On August 1, 2004, Edegel filed a petition of appeal against the said Administration Resolution 0150150000032, attaching a series of evidence that included an assessment prepared, on its request, by the Technical Assessment Agency of Peru, which established that to November 28, 1995, the values of the fixed assets goods transferred due to the company reorganization reached a total amount of US$868,381,396.00, which, in terms of assessment engineering, On the other hand, on November 14, 2003, Edegel filed a written document partially giving up the appeal filed against Administration Resolution 0150150000032, and through which it accepts the validity of a series of observations made by SUNAT (paying the omitted tax and its corresponding interests) and maintains its contents regarding the three more significant observations, such as: (i) observation on excessive devaluation as the result of ignorance of use of Law 26283 due to application of Regulation VIII of the Tax Code Preliminary Title and to an alleged invalidity of the assessment; (ii) the observation on the difference regarding liabilities exchange in foreign currency corresponding to fixed assets of 1998 and 1999 fiscal years; and (iii) the observation on the intangible depreciation and provisions for doubtful collection accounts. On September 10, 2004, through resolution 06686-4-2004, the Fiscal Court ruled the partial discontinuance of the appeal filed by EDEGEL on November 14, 2003, with the purpose of taking advantage of the SEAP. Also, the Fiscal Court ruled that application of Regulation VIII of the Tax Code lacks validity, for which the Tax Administration concluded that the split of Talleres Moyopampa was not effective and disregarded the assets transfer carried out within its framework. Regarding assets revaluation with tax purposes carried out by the company, the Tax Administration will have to determine the assets’ book cost and, if the Administration considers that this amount exceeds the market value, the corresponding adjustment will be carried out. On the other hand, the observation regarding the exchange difference for liabilities in foreign currency corresponding to fixed assets of the 1998 and 1999 fiscal years, and the observation on intangible depreciation and provisions for doubtful collection accounts was confirmed. • Note on General Sales Tax for the 2000 Period On December 27, 2004, Edegel was notified the assessment and fine resolutions for an approximate amount of MUS$8,226.69 (including tax as well as interests and fines). The main observation is Sunat ignorance of the economic reality corresponding to a transaction carried out in 2000 by Edegel and its controller Generandes. Edegel y Generandes entered into a Technical Assistance Contract for the Development and Management of Projects, according to which Generandes, directly or indirectly, would provide Edegel engineering, development, consulting, technical assistance, and construction supervision services for the development and construction of the hydro-electric power generating Yanango and Chimay projects. Generandes sub-contracted its shareholders Entergy Peru and Conosur to provide, on its behalf, the services it had undertaken. Contracts A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 185 were signed with both companies and the total of the undertaken obligations was transferred to them in exchange for a fee. Sunat questions the effective service provision based on the following arguments: received. In the opinion of the company’s external legal advisors, the Court should disregard SUNAT observations to the evidence provided by the company and assess it again in order to verify whether they support the service provision. 1. 2. 3. It considers that Generandes, as well as Conosur and Entergy Peru (the companies sub-contracted by Generandes) are holdings without capacity to provide the said services. It considers that, without documentation proving that Conosur and Entergy Peru sub-contracted their shareholders (Endesa of Chile and Entergy Co. from the United States, respectively) to provide the services to Edegel, it is not possible to accept the documentation submitted by Edegel and prepared by personnel from Endesa Chile and Entergy Co. It considers that development and management of the Yanango and Chimay projects were carried out by Edegel itself through its project management, and not by a third party. Therefore, SUNAT concludes that it is not possible to apply the Sales General Tax credit right resulting from the invoices issued by Generandes because it has been established that services were not provided by Generandes. The company external legal advisors consider that Sunat evaluation of the supporting documentation submitted by the company is subjective and not sufficient to call the operation non-existing, as SUNAT concludes that the service existed, but was provided by officials and directors from Edegel itself. SUNAT has not taken into consideration that the said officials did not receive salaries from Edegel (they were not employees, therefore, they were not in the payroll) or fees corresponding to the said services. Also, Sunat has not taken into consideration that it is obvious that a director’s tasks do not include managing projects or carrying out their engineering. SUNAT feels it has proved that the company received a free service from these official and from other personnel from Endesa Chile and Entergy Co. and that, at the same time, the company paid Generandes for a non-existing service. Although it admits that the projects were completed (but, according to SUNAT, under these officials free supervision and consulting,) it concludes that there is no motive between payment to Generandes and Edegel income generation, as the said payments are not connected with the services received by its own personnel (employees and directors) who worked without collecting any salary or fee whatsoever. The company will appeal against the assessment and fine resolutions in connection with this observation, rejecting the Administration arguments for considering the initially submitted evidence insufficient. The company will submit additional evidence regarding the service Talleres Moyopampa / Sunat On July 16, 1997, Talleres Moyopampa S.A. (former Empresa de Generación Eléctrica de Lima S.A.) was notified with Assessment Resolution 012-3-05475 and Fine Resolution 012-2-11085. Through the said Assessment Resolution, SUNAT demands payment of MUS$351 in addition to the corresponding interest for MUS$270.47, in order to settle the payment of income tax corresponding to the 1994 fiscal year, as it wrongly considers that payment on those taxes corresponding to May and June, 1994, were not made. On the other hand, the Fine Resolution penalizes for the company for the amount of MUS$351, and MUS$270.47 corresponding to interests, for allegedly having infringed section 1 of article 178 of the Tax Code in the company’s annual income tax return corresponding to 1994. On August 15, 1997, Talleres Moyopampa S.A. filed a remedy of complaint against the said resolutions, sustaining that the Agreement signed with the Ministry of Economy and Finance within the ELECTROLIMA privatizing process established the latter as the sole entity responsible for the taxes that the Tax Administration may determine. Also, it was alleged that during the first half of the 1994 fiscal year, the period to which the observations correspond, ELECTROLIMA was in charge of managing the old Edegel S.A.A. The remedy of complaint filed by Talleres Moyopampa S.A. was disregarded through Administration Resolution 015-4-07866, for which the company filed the corresponding appeal to the Fiscal Court (Case file 2749-98.) Currently, the case file is with the Fiscal Court Resolution 9603-2- 2001, which declares the Administration Resolution 015-4-07866 invalid and groundless and orders the Tax Administration to issue a new ruling, taking into consideration the scope of the Agreement signed with the Public Treasury General Department of the Ministry of Economy and Finance. Secondary liability attribution to Edegel On August 12, 1998, Edegel (a company split from Talleres Moyopampa S.A.) was notified through Administration Resolution 012-4-04453, with the alleged purpose of ensuring payment of the tax debt demanded from Talleres Moyopampa S.A. of the above- mentioned proceedings. It has been attributed secondary liability due to its purchase of a part of the assets and liabilities of the said company. 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 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 186 In these circumstances, and through a written document filed on September 7, 1998, Edegel supported Talleres Moyopampa S.A. contesting appeals However, on December 14, 1998, SUNAT issued Administration Resolution 015-4-09092 declaring Edegel claim groundless. On January 21, 1999, Edegel filed and appeal against Administration Resolution 015-4-09092, where the case file was joined with that indicated as background to this procedure. Through Fiscal Court Resolution 9609-2-2001, this body has declared invalid and groundless Administration Resolution 015-4-09092 in the parts regarding Assessment Resolution 012-03-05475 and Fine Resolution 012-2-11085; therefore, the Tax Administration must rule again due to the same reasons stated in the previous section. Edegel / Essalud Currently, the administrative demand filed on July 31, 1996, against the determination of the amount to be paid carried out by the IPSS based on Decree Laws 22482 (Health), 19990 (Pensions,) and 18846 (Labor Accidents) for the period between April 1994 and March 1996 is being processed. The amount considered, regarding the three items, is MUS$2,499.81 plus interest. The company should have a similar result to that obtained in the other two procedures that concluded one year ago on the same items. If so, the amount stated by the health regime of Decree Law 22482 of MUS$2,161.87 plus interests would be deducted, leaving a probable amount to be paid, of MUS$337.93 plus interest. Emgesa S.A. There is an environmental contingency group action against Emgesa S.A. E.S.P., the Empresa de Energía de Bogotá S.A. E.S.P., and CAR for alleged material and moral losses caused by the environmental damage in the Muña reservoir. The plaintiffs’ initial demand is for M$708,695,120. Enersis S.A. are defendants or plaintiffs in other minor legal procedures with probable or reasonably possible loss risk, and whose individual effects in the case of non-favorable rulings is not significant in the current 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’s ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 7.0x; 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 1.60x; 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 r e h o l d e r s ’ e q u i t y a t l e a s t e q u a l t o ThCh$467,560,350 (U.F.27 million) As of December 31, 2004 all these obligations have been met. Chilectra S.A. The Company did not have any management restrictions or financial covenants during the years ended December 31, 2003 and 2004. 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 2004, in order to ensure its supply and corresponding cost. Endesa S.A. (parent Company) 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 9.4x; The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 6.30x; 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 112.50%; A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 187 • • Assets corresponding to companies whose business is regulated, is not to be less than 50% of the total consolidated assets. Edegel S.A. M i n i m u m s h a r e h o l d e r s ’ e q u i t y a t l e a s t e q u a l t o ThCh$779,267,250 (U.F.45 million) Financial indicators originated by credit contracts, Bonds Program and Short-term instruments: As of December 31, 2004 all these obligations have been met. • Debt ratio no greater than 0.75 Pehuenche S.A. As of December 31, 2004 these obligations have been met. 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$164,511,975 (UF9,500,000). As of December 31, 2004 all these obligations have been met. Central Costanera S.A. 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. The most demanding requirements in respect to financial coefficients are those contained in the Syndicated loan, the Agent of which is BBVA Banco Francés, and in the bilateral with JP Morgan, which are the following: • • • The long-term debt with third parties cannot exceed US$235 million; the debt with a maximum of 30 days cannot exceed US$180 million. Clauses that restrict change of Control; Clauses that restrict payments to shareholders, including subordination of the related debt. As of December 31, 2004 all these obligations have been met. Hidroeléctrica Betania S.A. Covenants include limitations on the payment of related debt and limitations on change in control and the following financial ratios: • • EBITDA/Senior Financial Debt no less than 1.4 Cash Flows before Dividend Payments/Senior Financial Debt no less than 1.1 • Shareholders’ Equity/Senior Debt no less than 2.5. At December 31, 2004 these coverants have been fully net. Other restrictions As a common and habitual practice for some bank loan debts and also in capital markets, a substantial portion of Enersis S.A.’s financial indebtedness is subject to cross-failure provisions. Some failures of relevant subsidiaries, if not corrected in time (as to those specific provisions allowing a year of time to correct the problem), might result in the cross-failure at the Endesa-Chile and Enersis S.A. level., and, in this case, a significant percent of Enersis S.A.’s consolidated liabilities might eventually become due on demand. Non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to some of their most relevant subsidiaries for an individual amount exceeding the equivalent of 30 million dollars, would cause advanced payment of syndicated credits contracted in 2004. Also, non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to any of their subsidiaries for individual amounts exceeding the equivalent of 30 million dollars, would cause advanced payment of Yankee bonds. In addition, some credit agreements contain provisions according to which certain events different from non-payment in these companies or in any of their most relevant subsidiaries, such as bankruptcy, insolvency, adverse executed legal sentences for amounts larger than US$ 50 million, and expropriation of assets, may cause those credit acceleration clauses to be in effect. 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 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 188 There are no clauses in the credit agreements through which changes in these companies corporate or debt classification by risk classification agencies may cause an obligation to make debt prepayments. However, according to the Standard & Poor (S&P) risk classification agency, a variation in the foreign currency debt risk classification produces a change in the applicable margin of syndicated credits contracted in 2004. At December 31, 2004, these obligations and restrictions have been fully met. N OTE 30. SU RE TIES O BTAI N ED FROM TH IRD PARTIES Enersis S.A. Endesa S.A. (parent Company) The Company has received certificates of deposit for ThCh$242,994 at December 31 2004 (ThCh$233,785 in 2003). 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$12,746,232 as of December 31, 2004 (ThCh$19,952,181 in 2003). The Company presents among its current liabilities, deposits received in cash for the use of temporary connections by customers of the company for ThCh$49,332 and ThCh$28,237 at December 31, 2003 and 2004, respectively. San Isidro S.A. Documents in guarantee have been received for ThCh$0 as of December 31, 2004 (ThCh$1,424,411 in 2003). 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$1,738,223 as of December 31, 2004 (ThCh$3,161,818 in 2003). The Company has received documents in guarantee for ThCh$223,843 as of December 31, 2004 (ThCh$294,202 in 2003). Enigesa S.A. Compañía Americana de Multiservicios Ltda. The Company has received documents in guarantee for ThCh$20,000 as of December 31, 2004. (ThCh$46,956 in 2003). The Company has delivered bank bonds for ThCh$4,700,464 (ThCh$760,775 in 2003) and has received bank bonds for ThCh$2,305,702 (ThCh$1,565,159 in 2003). Pangue S.A. The Company has received documents in guarantee for ThCh$5,186 as of December 31, 2004 (ThCh$10,073 in 2003). A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 31. FO REI G N CU RREN CIES As of December 31, 2003 and 2004, foreign currency denominated assets and liabilities are as follows: 189 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$ $ 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$ Soles $ 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$ Soles $ Arg. Reales As of December 31, 2003 ThCh$ 4,475,428 1,051,927 8,128,041 1,046,050 4,226,021 8,102,021 150,656,992 64,890,182 1,792,199 4,520,396 40,801,202 4,993 2,901,493 236,903 8,291,246 1,072,500 104,405,263 6,945,168 86,307,575 29,562,766 44,785,076 205,771,276 4,630,918 1,333,327 647,945 23,366 - 1,936,137 40,900,332 9,938,644 1,335,543 20,255,164 5,377,821 977,538 16,731,819 1,032,262 5,822,947 3,331,840 35,294 129,348 5,282,251 2,884,948 29,507,945 4,441,448 9,275,106 1,648,121 543,279 35,024,812 603,438 762,416 4,808,109 21,619,721 1,124,828 1,531,917 218,488 252,478 797,190 12,938,905 35,276,929 3,402,950 9,352,029 4,992,003 818,261 46,568,412 10,892,528 1,400,414 2,262,288 13,835,099 2004 ThCh$ 3,150,244 6,580,859 27,027,163 1,341,377 2,389,222 16,005,549 234,366,548 177,779,349 1,095,113 5,855,305 31,647,544 4,993 4,686,733 927,807 6,702,004 3,539,809 116,070,684 7,281,743 109,719,689 33,403,904 49,950,207 208,774,093 - 891,218 233,126 - 21,308 1,682,362 2,985,441 28,429,986 983,456 11,449,313 4,926,064 1,280,003 13,759,939 - 2,170,591 106,983,306 - 116,358 3,393,757 1,721,751 33,232,156 5,184,659 9,011,283 2,338,831 1,214,386 70,398,500 15,732,686 1,623,292 2,546,982 7,336,412 1,162,558 1,516,852 1,136,210 1,010,321 816,287 39,368,960 49,308,731 949,786 9,573,388 173,812 151,489 29,996,521 1,093,546 1,405,979 321,522 3,148,123 Total current assets 1,156,481,276 1,519,081,190 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 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 190 b) Property, plant and equipment Account Land Currency $ no Reaj. $ Col. Soles $ Arg. Reales As of December 31, 2003 ThCh$ 41,777,562 29,133,766 8,670,485 8,419,958 30,338,358 2004 ThCh$ 52,338,344 26,530,812 7,951,724 7,724,720 28,061,395 Building, infrastructure and work in progress $ no Reaj. 3,538,008,367 3,624,231,407 Machinery and equipment Other plant and equipment Technical appraisal $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles Reales 2,765,131,519 2,537,436,134 1,021,951,727 951,907,447 1,423,871,557 1,322,175,663 1,556,321,432 1,429,235,015 53,334,336 22,507,774 388,475,456 665,909,330 676,065,676 127,322,197 9,472,574 36,278,327 122,298,330 61,420,508 29,601,418 62,173,087 428,561,045 114,622,461 85,322,291 22,481,645 357,431,602 623,547,755 632,336,970 134,019,551 17,284,629 32,595,808 108,157,283 106,652,048 29,794,577 56,938,410 392,478,253 104,971,798 Accumulated depreciation $ no Reaj. (1,602,279,713) (1,685,445,219) $ Col. Soles $ Arg. Reales (690,224,493) (711,423,578) (859,351,499) (822,014,062) (969,733,183) (963,750,414) (801,308,839) (824,150,066) Total property, plant and equipment 8,298,769,523 7,684,821,942 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 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 191 Currency $ no Reaj. US$ $ no Reaj. US$ $ Col. Soles Reales $ no Reaj. US$ $ Col. $ no Reaj. US$ $ Col. Soles $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ no Reaj. US$ Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales As of December 31, 2003 ThCh$ 108,073,015 76,643,743 2,341,160 - 134,321,257 8,441 125,946 2004 ThCh$ 107,682,826 83,782,236 2,378,053 27,213,438 20,312,213 7,731 81,319 756,029,451 704,752,310 5,509,044 38,368,653 (17,082,960) (13,518,672) (4,674,109) (45,939,757) 3,577,465 1,954,002 4,661,886 7,814,513 2,103,001 2,504,339 12,696,787 16,086,006 (12,939,841) (8,104,372) (2,569,614) (33,121,987) 1,488,725 1,273,568 3,509,615 6,687,455 2,216,011 6,487,025 108,518,214 104,247,690 609,105 131,562,999 159,325 5,425,595 63,941,140 21,239,485 25,374,006 3,548,541 16,568,392 87,875,268 334,097 122,111 38 - 52,469,411 23,071,340 46,128,153 2,828,521 27,509,762 106,991,380 Total other assets 1,527,642,488 1,303,622,007 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 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 192 d) Total assets Account Total assets by currency Total assets by currency e) Current liabilities Currency $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales U.C. As of December 31, 2003 ThCh$ 56,425,071 3,377,112,608 405,393,838 2,587,918,030 1,033,927,731 1,356,788,988 2,164,294,759 1,032,262 2004 ThCh$ 8,165,464 3,431,027,557 506,017,324 2,385,798,927 946,214,739 1,217,040,610 2,013,260,518 - 10,982,893,287 10,507,525,139 Within 90 days 91 day to 1 year As of December 31, 2003 As of December 31, 2004 As of December 31, 2003 As of December 31, 2004 Account Currency Amount ThCh$ Average Amount Average Rate ThCh$ Short-term debt due to banks and $ no Reaj. 2,438,349 2.99% 2,434,847 Amount ThCh$ Average Amount Average Rate ThCh$ Rate - 0.00% - 0.00% 44,663,417 12.71% 426,911 financial institutions Current portion of long-term debt due to banks and financial institutions Current portion of bonds payable Current portion of long-term notes payable Dividends payable US$ Euro $ Col. Soles $ Arg. Reales Others $ Reaj. US$ Euro Yen $ Arg. $ Col. Reales U.P. Others $ Reaj. US$ $ Arg. $ Col. Soles Reales US$ Reales Rate 3.00% 3.92% 3.00% 7.31% 5.85% 8.99% 84,814,231 12.71% 54,848,068 3,588,066 5.00% 908,779 117,353,815 15.93% 49,065,716 28,458,882 15.93% 23,369,915 10,516,380 15.93% 6,151,050 239,979 15.93% 52,128,449 16.76% 16,220,984 15.93% 1,479,491 22,379,370 4.56% 4.96% - 0.00% 13,510,451 3.46% - - 5,173,030 - - - 0.00% 20,194 0.00% 0.00% 5.60% 0.00% 0.00% 9.70% 984,760 16.79% - 0.00% - 0.00% 944,426 16.79% - - 235,855 5.88% 151,779 4,482,124 7.87% 22,240,292 - 0.00% 5,744 0.00% 0.00% 5.80% 8.10% 7.00% 6,991,505 11.25% 6,019,981 11.16% - - 0.00% 0.00% 11,666,373 15.93% - - - 35,461,819 82,429,959 126,861 435,146 - - 0.00% 0.00% 0.00% 4.56% 4.96% 3.00% 3.46% 0.00% 0.00% 1,144,981 16.79% 1,344,077 16.79% 7,543,814 37,890,558 - - 3,854,757 16.79% 4,716,740 15.81% 5,741,290 16.79% 10,079,596 14.93% - - - 2,589,394 - - 1,700,403 67,353,491 125,395 412,818 2,405,568 5.87% 0.00% 0.00% 0.00% 9.25% 0.00% 0.00% 9.00% 7.05% 3.00% 0.90% 3.79% 14,538,378 12.45% - 0.00% 415,332 7,670,851 32,737,993 153,456 - - - 18,174,027 - - - - - - - 1,653 - - - - - 5.88% 6.00% 8.00% 8.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 5.88% 7.87% 0.00% 0.00% 4.94% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 6,787,140 4.94% 18,602,854 6.23% 8,787,827 - 0.00% 19,501,097 20.31% - 8,176,632 0.00% - $ no Reaj. 1,006,694 $ Col. Soles $ Arg. Reales 2 82,109 749 1,413,566 6,567,034 2,008,600 722,922 2 18,179 1,566 2,656,832 84,313,435 4,351,182 258,353 31,241,735 19,585,347 45,782,706 67,468,092 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 13,793,078 - 734,392 - - - - - 349 - - - - - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Accounts payable $ no Reaj. 66,370,396 US$ Euro $ Col. Soles $ Arg. 861,067 156,741 28,960,109 17,360,048 29,090,974 Reales 78,030,649 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S e) Current liabilities, continued Within 90 days 91 day to 1 year 193 Account Short-term notes payables Miscellaneous payables Amounts payable to related companies Accrued expenses Withholdings Income tax payable Deferred income Other current liabilities Total current liabilities by currency Currency $ no Reaj. US$ Reales $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ no Reaj. $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. $ Col. $ Reaj. $ no Reaj. US$ $ Col. Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles Reales $ Arg. U.P. Others Amount ThCh$ Amount ThCh$ Amount ThCh$ Amount ThCh$ As of December 31, 2003 As of December 31, 2004 As of December 31, 2003 As of December 31, 2004 Average Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 559 - 7,181,201 2,871,840 959,372 9,887,281 4,672,384 3,505 11,464,093 480,831 56,725,083 - 476,526 525,460 23,300,775 69,517 10,791,076 - 7,578,841 2,872,127 3,179,885 7,650,469 10,793,064 2,753,830 6,105,833 12,493,955 17,551,516 394,297 42,420,816 2,790,566 1,187,223 7,146,632 8,659 4,872,530 - 1,121 464,355 98,023 2,525,483 46,868 24,119,118 10,542,045 - - - 5,636,239 63,908 - - - - - - - - - - 84,878 29,393,686 69,574 - 2,536,430 - 11,108 161,356 - - - - - 2,229,391 3,007,496 - - - 1,972,547 - 6,084 2,865,946 1,236,032 - - - - 18,809 - 21,577,819 5,400,636 6,876,299 11,010,389 8,821,069 2,583 7,203,285 255,365 1,464,924 2,923,148 394,992 1,732,753 24,745,818 30,095 7,194,918 1,050 5,712,516 1,566,538 2,939,181 5,506,856 8,026,256 2,265,795 5,155,760 17,274,242 32,411,616 16,822,260 23,507,327 19,809 - 3,449,774 - 6,127,909 4,174,302 10,242 10,919 9,380,424 1,497,109 45,669 21,369,668 30,572,763 - 6,227,405 - 5,947,717 721,873 - 2,078,438 - - - - - - - - 75,770 11,935,030 180,402 - - - - - - - 51,320 - 479,246 - - - - - 1,623,507 - 376,487 2,258,422 748,752 - - - - Average Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Average Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Average Rate 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1,755,683 113,672,511 138,436,121 3,744,807 13,510,451 205,380,777 68,692,016 209,006,882 82,926,530 - 17,165,410 231,076 118,139,756 150,962,084 1,167,132 - 151,493,685 78,540,599 233,316,541 93,470,406 - - 43,096,595 40,764,166 180,146,875 126,861 435,146 2,229,391 25,998,126 5,752,398 - 1,144,981 1,344,077 9,823,511 22,243,922 126,572,507 125,395 412,818 14,538,378 2,078,438 10,079,596 5,199,738 - 415,332 Total current liabilities 854,291,188 827,321,279 301,038,616 191,489,635 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 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 194 f) Long-term liabilities as of December 31, 2004 Account Currency Due to banks and financial $ Reaj. institutions Bonds payable Long-term notes payable Miscellaneous payable Accrued expenses US$ Euro $ Arg. $ Col. Reales $ Reaj. US$ $ Col. Soles $ Arg. Reales US$ Reales $ Reaj. $ no Reaj. US$ Reales $ Reaj. $ no Reaj. $ Col. Reales Deferred income taxes $ no Reaj. Other long-term liabilities Soles $ 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$ 1,698,508 91,767,757 1,808,395 5,520,964 313,735 Average Rate 9.00% 6.95% 3.00% 3.96% 9.00% Amount ThCh$ 1,008,580 357,086,797 - 3,536,601 Average Rate 9.00% 3.65% 0.00% 1.75% 27,212,269 12.45% Amount ThCh$ - 25,386,640 - 2,652,453 - Average Rate 0.00% 8.59% 0.00% 1.75% 0.00% 62,043,271 15.22% 7,569,269 16.77% 37,595,086 16.47% Amount ThCh$ - 911,946 - - - - 103,902,300 300,996,000 6.20% 7.27% 69,910,209 457,068,000 6.19% 8.03% 84,746,197 418,050,000 5.17% 7.90% 59,484,067 511,073,929 Average Rate 0.00% 5.78% 0.00% 0.00% 0.00% 0.00% 5.95% 7.79% 39,535,092 15.53% 84,840,185 10.60% 174,934,536 12.13% 68,381,485 22,464,484 7.58% 7.50% 46,303,253 20.64% 16,980,959 - - 47,953,491 7.22% 32,006,890 6.97% 0.00% 0.00% 7.28% 17,983,304 - 8.83% 0.00% 16,846,109 16.00% 19,926,002 7.42% - 0.00% 27,355,685 10.92% 5,763,842 10.92% 10,221,301 10.92% 26,857 10.92% - 727,204 15,040,244 12,567,061 121,124 3,442,268 70,078,692 207,120,842 16,295,211 27,191,732 66,693,221 15,186,054 1,994,962 925,586 7,969,587 18,622,479 0.00% 0.00% 4.14% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - - 1,795,204 - - 2,972,036 - 1,157,644 2,447,289 - 12,534 1,361,106 - 639,812 - - 70,931,323 6,780,431 847,956,891 - 112,052,454 17,620,771 3,536,601 14,490,755 0.00% 0.00% 6.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - - 5,614,137 - - 7,316,529 - 5,135,478 2,907,066 - - 1,573,672 - 1,151,537 - - 0.00% 0.00% 6.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 84,746,197 11,797,267 468,976,779 - 174,934,536 19,134,841 2,652,453 69,797,974 0.00% 0.00% 6.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 167,268 - 14,672,591 - - 13,680,660 - - 14,694,590 - - 13,213 - - - - 59,651,335 28,388,463 526,658,466 - - - - 26,857 Total long-term liabilities $ Reaj. 172,415,153 by currency $ no Reaj. 35,650,737 US$ Euro $ Col. Soles $ Arg. 457,752,454 1,808,395 109,927,519 96,498,803 35,955,035 Reales 374,012,591 Total long-term liabilities 1,284,020,687 1,073,369,226 832,040,047 614,725,121 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S g) Long-term liabilities as of December 31, 2003 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years 195 Account Currency 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. $ Reaj. $ no Reaj. US$ Soles $ Arg. Reales $ Reaj. $ no Reaj. US$ Euro Yen $ Col. Soles $ Arg. Reales Pound Amount ThCh$ 3,167,804 205,570,231 124,781 432,999 3,685,689 Average Rate 9.00% 4.77% 3.00% 0.89% 1.75% Amount ThCh$ 1,305,528 448,913,335 - - 1,842,844 Average Rate 9.00% 3.83% 0.00% 0.00% 1.75% Amount ThCh$ Average Rate Amount ThCh$ Average Rate - 0.00% - 0.00% 45,212,332 - - 6,450,209 3.36% 0.00% 0.00% 1.75% 2,535,154 - - - - 3.89% 0.00% 0.00% 0.00% 0.00% - 0.00% - 0.00% - 0.00% 38,338,946 12.55% - 0.00% 82,677,254 22.50% 4,887,591 20.81% 8,653,443 20.06% 531,883 17.74% 412,209 6,263,066 121,729,000 4.63% 5.88% 7.91% 105,570,083 10.50% 76,461,688 41,482,653 4.39% 7.42% - 113,188,072 219,112,200 - 10,409,782 49,425,883 0.00% 5.88% 7.91% 0.00% 4.39% 7.42% 104,378,205 486,916,000 5.88% 7.91% - 0.00% 859,784 32,636,810 4.39% 7.42% 11,611,380 14.46% 4,696,312 14.46% 9,123,707 14.46% - 0.00% 884,934 5,357,366 8,692,608 86,428 2,511,857 0.00% 0.00% 0.00% 0.00% 0.00% - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 21,219,190 232,597,309 118,323 9,430 3,542,274 13,099,358 2,109,649 8,171,645 23,822,941 9,440,300 7,057,388 387,238,608 124,781 432,999 126,875,701 78,571,337 11,857,334 359,401,492 412,209 - - - 3,223,970 - 2,674,905 3,045,975 46,218,706 - 7,076,619 11,800 998,700 5,284,063 715,703 - - 114,505,400 10,750,224 725,781,456 - - 84,557,652 11,125,485 1,842,844 12,807,873 - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - - - - - 6,391,560 - - - - 6,575 1,171,374 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% - 0.00% 1,218,766 - - 0.00% 0.00% 0.00% 104,384,780 7,562,934 564,765,142 - - - 2,078,550 6,450,209 17,777,150 - 97,345,804 5.88% 7.91% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1,014,543,656 - - - - 167,520 18,013 9,128,388 - - 10,692,906 - - - - - 1,682,754 - - - - 97,513,324 12,393,673 1,026,207,198 - - - - - 531,883 - Total long-term liabilities 981,412,149 961,370,934 703,018,765 1,136,646,078 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 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 196 N OTE 32. SANC TI O NS Endesa S.A. Chilectra S.A. On April 27, 2004, through Exempt resolution 814, the Superintendence of Electricity and Fuel (S.E.C.) penalized the Company for a total amount of 1,830 UTA (ThCh$665,564), as a result of the blackout which occurred in January 13, 2003, that affected the area between Tal Tal and Santiago. On May 7, 2004, the Company filed an appeal whose jurisdiction and solution belongs to the Superintendency of Electricity and Fuel (S.E.C.). The appeal is still pending for resolution. Against the resolution solving the petition of appeal, the company could file a claim petition whose jurisdiction and resolution’s jurisdiction is Santiago Court of Appeal. To this date, the Corporation cannot exactly forecast the effects the final resolution will have on its financial statements. During the year from January 1 to December 31, 2004, the Company and its subsidiaries have made disbursements for a value of ThCh$3,521,010 (ThCh$12,449,554 in 2003), which mainly correspond to: Operation expenses: They correspond to laboratory studies, monitoring, follow-up and analysis, which resulted in expenses of the fiscal year ThCh$527,033. Cachoeira Dourada S.A. environmental commitment and cooperation activities equivalent to ThCh$107,095. Environmental protection at Central Costanera (cleaning of fuel tanks, screen chamber construction, medication of gas fumes and other), was equivalent to ThCh$73,577. Muña environmental lawsuit in Emgesa for ThCh$521,680. The Company and its directors has not been the subject to Investment related to the following projects, which are sanctions by the SVS nor by any other administrative authorities. activated, ThCh$2,291,625: N OTE 33. ENVIRO N MENT Chilectra S.A. The Company has made disbursements during the year of ThCh$1,475,427 (ThCh$1,600,026 in 2003), mainly for the following items: Investments: Implementation of Environmental Management System, ISO Standard 14.001 Reforestation Pre-assembling. Expenses: Pruning Cutting. • • • • • • • • • • • • • • Ralco Power Plant – Environmental Program. Pehuenche, Loma Alta, and Curillinque Power Plants – Standardization of sewerage and drinking water systems. Sauzalito Power Plant – Standardization of sewerage and drinking water systems. Antuco Power Plant – Implementation of the Environmental Management System in accordance with ISO Standard 14,001 and liabilities resolution. Rapel Power Plant – Environmental Circuit. San Isidro Power Plant – Environmental Circuit. Pangue Power Plant – Landscape recuperation, former Queuco deposit. Isla Power Plant – Construction of spillway buckets in power transformers. Sauzal Power Plant – Works in service transformers spillway bucket and SGA certification in ISO Standard 14,001. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 197 N OTE 34. SU BSEQ U ENT E VENTS Endesa S.A. On January 21, 2005, Endesa S.A. communicated to the Superintendency of Securities and Insurance the following relevant fact: “During December, 2004, the Experts’ Panel provided in the Power Service Basic Law resolved a series of differences filed by power companies, members of the CDEC-SIC in connection with the firm power calculation inside the said agency. Considering the resolutions issued by the said Experts’ Panel on December 9, 2004, the Operation Department of the CDEC-SIC informed the power generating companies in the system, during this week, on the results of the readjustment of firm power balance corresponding to the April 2000 to March 2004 period, as well as on the result of the said readjustments for the April 2004 to November 2004 period. As a result of the said readjustments carried out by the CDEC- SIC, and their subsequent payment, the consolidated financial statements of Empresa Nacional de Electricidad S.A. will be negatively affected in an amount of $14,522,772,161 for the April 2000 to March 2004 period, and in an amount of $ 3,665,377,677 during the April 2004 to November 2004 period. Empresa Nacional de Electricidad S.A. considers it necessary to inform the market that, notwithstanding the fact that the company will carry out the payments resulting from the said readjustment, this does not mean that it approves them. In fact, Empresa Nacional de Electricidad S.A. reserves the right to exhaust every legal means for contesting, considering that the fundamental guarantees protected by the State Political Constitution were affected in the said resolutions by the Experts’ Panel and Ministry Resolution 35 of the Ministry of Economy. Furthermore, and according to the information provided to the market, on December 28, 2004, Empresa Nacional de Electricidad S.A. filed a Public Law Invalidity appeal against Ministry Resolution 35 of the Ministry of Economy, which untimely and with no competence opened power readjustments between the system power generating companies for the 2000-2003 period. In this sense, we consider it our duty to inform the market that last January 20, the Empresa Nacional de Electricidad S.A. requested the CDEC-SIC to call an extraordinary board of directors meeting in order to take a stand regarding the representation the CDEC-SIC made of the Laja and Rapel reservoirs in the calculation of firm power, which will probably generate new differences to be resolved by the Experts’ Panel. The amounts indicated in the previous relevant fact have been provisioned in the companies’ financial statements to December 31, 2004. In the period between January 1, 2005, and to the date of issue of these financial statements, no other significant facts have occurred that may affect their submission. Juan Carlos Weiczorek C. Subgerente Contabilidad Chile Mario Vacarce Duran Gerente Gerenal 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 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 198 N OTE 35. APPEN D IX U.S. GA AP D IFFERENCES BE T WEEN CH ILE AN AN D U N ITED STATES GEN ER ALLY ACCEP TED 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. ACCO U NTI N G PRI NCIPLES (c) Depreciation of property, plant and equipment 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. (a) Inflation accounting The cumulative inflation rate in Chile as measured by the Consumer Price Index for the three-year period ended December 31, 2004 was approximately 6.52%. 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. (b) Reversal of revaluation of property, plant and equipment In accordance with standards issued by the SVS., certain property, plant and equipment are recorded in the financial statements at amounts determined in accordance with a technical appraisal. The difference between the carrying value and the revalued amount is included in shareholders’ equity, beginning in 1989, in “Other reserves”, and is subject to adjustments for price-level restatement and depreciation. Revaluation of property, plant and 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 intangible assets correspond mainly of rights of way. Additionally the Company has recorded intangible asset 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, the balance of this intangible asset would have been recorded at the Predecessor Company’s carrying value which was zero. In 2004, this intangible asset was charged to income under Chile GAAP thereby zeroing out the adjustment for this item between U.S. GAAP and Chile GAAP. The estimated amortization expense for the intangible assets which, mainly consist of rights of way, for US GAAP purposes (which is equivalent under Chile GAAP) for each of the five succeeding fiscal years is as follows: A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 199 Year 2005 2006 2007 2008 2009 Amortization ThCh$ 5,477,874 4,459,668 3,295,044 1,855,711 1,217,734 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 and the write-off of the intangible asset in 2004 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 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. iii. 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. 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 between U.S. GAAP and Chile GAAP 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. Additionally, under U.S. GAAP, temporary differences arising in connection with fair value adjustments on business combinations result in deferred taxes and a corresponding adjustment to goodwill. An adjustment is required in the reconciliation to U.S. GAAP to record goodwill arising from deferred tax liabilities related to past business combinations. When required, the income tax effects of U.S. GAAP adjustments are recorded in our reconciliations to U.S. GAAP. The effect of these differences on the net income and shareholders’ equity of the Company is included in paragraph (gg) below. (f) Severance indemnity As described in Note 2 n, under the Company’s employment contracts, it has committed to provide a lump sum payment to each employee in its Chilean entities at the end of their employment, whether due to death, termination, resignation or retirement. Until December 31, 2003, those obligations are calculated based on the present value of the liability determined at each year-end based on the current salary and average service life of each employee. The Company and its Chilean subsidiaries used a discount rate of 9.5% for the years ended December 31, 2002 and 2003. As described in Note 3, starting January 1, 2004 the Company changed certain of its underlying assumptions related to its severance indemnities changing the discount rate of 6.5% and modifying the turnover rate. 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 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 200 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 vested benefit obligation is measured using assumptions as to future compensation levels. For U.S. GAAP purposes, 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. In 2003, the Company, for US GAAP purposes, used a 6.5% discount rate in according with the above guidance. The impact of using the appropriate discount rates under US GAAP for 2002 and 2003 would not have resulted in a material difference from the obligation recorded at the rate in use in accordance with Chilean GAAP. Therefore, in 2004, the accounting assumptions underlying the calculation of the obligation for staff severance indemnities were the same under Chile GAAP and US GAAP. The Company recognizes actuarial gains and losses immediately for 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 accounting The Company has obligations related to post-retirement benefits as stipulated in collective bargaining agreements and pension obligations as stipulated by contract for its subsidiaries 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: i. 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. ii. 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 are less than 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 recorded against an offsetting intangible asset. iii. The changes effected for the discount rate in Chile GAAP and US GAAP and their timing as described in (f) were also instituted for post-retirement benefits. The effects of accounting for post-retirement benefits under US GAAP have been presented in paragraph (gg). (h) Investments in related companies Under Chilean GAAP, until December 31, 2003 for all investments accounted for by the equity method, the proportionate net book value of the investee company was recorded as an investment and the difference between the cost of investment and the proportionate net book value of the investee was recorded as goodwill. The goodwill is to be amortized to income over a maximum period of twenty years. The investment account is adjusted to recognize the investor’s share of the earnings or losses of the investee determined under Chilean GAAP subsequent to the date of the purchase. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value of acquired assets and liabilities for the accounting for all acquisitions after January 1, 2004 and recording the differential between the cost and the fair value as goodwill/negative goodwill as well as prospectively designating all investments of 20% to 50% as having significant influence rather than the 10% to 50% level previously defined as having significant influence in Chilean GAAP. No retroactive changes or cumulative effects of changes in accounting principles were required under Technical Bulletin No. 72. Under US GAAP, in accordance with Accounting Principles Board Opinion No. 18, “the Equity Method for accounting for Investment in Common Stock” (“APB No. 18”), the carrying amount of an investment accounted for under the equity method is initially recorded at cost and shown as a single amount in the balance sheet of the investor. It is adjusted to recognize the investor’s share of the earnings or A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 201 losses of the investee determined under US GAAP subsequent to the date of investment. The investment reflects adjustments similar to those made in preparing consolidated financial statements, including adjustments to eliminate inter-company gains and losses and to account for the differences, if any, between the investor’s cost and the underlying equity in net assets of the investee at the date of investment. The investment is also adjusted to reflect the investor’s share of change in the investee capital accounts. The Company’s equity share of the effect of the adjustments from Chilean GAAP to U.S. GAAP of equity accounted investees is included in paragraph (gg) below. The principal U.S. GAAP adjustments affecting the Company’s equity investees are as follows: (I) (II) Reversal of capitalized foreign currency exchange differences related to capitalized interest. Reversal of complementary accounts (asset or liability) recorded as a transitional provision as of January 1, 2000. (III) Organizational costs deferred under Chilean GAAP that, under U.S. GAAP, should have been included in income. (IV) The recording of derivative instruments in accordance with SFAS No. 133. (V) The deferred income tax effects of adjustments (I), (III) and (IV). (i) Goodwill and long-lived assets (I) Under Chilean GAAP, for acquisitions completed through December 31, 2003 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 from 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. 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 are included in paragraph (gg) below. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value of acquired assets and liabilities for the accounting for all acquisitions after January 1, 2004, and consequently after that date difference in accounting treatment related to the allocation of purchase consideration over assets acquired and liabilities assumed between Chilean GAAP and US GAAP no longer exists. (II) Under Chilean GAAP, the Company evaluated, during 2002, 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 were 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$244,768,877 net of minority interest, to write-off all amounts of goodwill and negative goodwill in a accordance with the results of impairment analyses performed for these companies. In accordance with U.S. GAAP, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets”, (SFAS No. 142) as of January 1, 2002. SFAS 142 applies to all goodwill and intangible assets acquired in a business combination. Under the new standard, all goodwill, including that was acquired before initial application of the standard and indefinite-lived intangible assets are not amortized as of the effective date but must be tested for impairment at least annually. The transitional impairment test required by the standard was performed and no adjustment for impairment was required. However, based on subsequent testing of the Company’s investments in Argentina and Brazil performed as of December 31, 2002, it was determined that these investments were impaired. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 202 The following net effects are included in the net income (loss) and shareholders’ equity reconciliation to U.S. GAAP under paragraph (gg) below: (b) the adjustment to record the reversal of the impairment recorded under Chilean GAAP during 2002, which is different in amount from that in U.S. GAAP because of goodwill basis differences, (a) reversal of goodwill amortization recorded under Chilean GAAP (c) the adjustment to record the impairment under US GAAP from investment in Argentina and Brazil in 2002 The adjustment as of each year are as follows: As of December 31, 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ Reversal of goodwill amortization 55,829,283 52,416,632 53,776,148 Reversal of impairment recorded under Chilean GAAP Impairment of goodwill under US GAAP Totals 468,363,520 (621,543,408) — — — — (97,350,605) 52,416,632 53,776,148 (III) The company has considered the factors which could be considered changes in circumstances which would trigger an impairment review and, in accordance with 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. There were no differences between impairment charges recorded under Chilean GAAP and U.S. GAAP except for the reclassification of impairment charges in 2002 related to the subsidiaries Centrais Electrica Cachoeira Dourada S.A. and Inmobiliaria Manso de Velasco Limitada from non-operating expenses as they were reported under Chilean GAAP (see Note 23b), to operating income under U.S. GAAP. (j) Negative Goodwill Under Chilean GAAP, until December 31, 2003 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. Technical Bulletin No. 72 issued by Chilean Association of Accountants requires using fair value accounting for all acquired assets and liabilities for all acquisitions after January 1, 2004 Under U.S. GAAP, the fair values of the assets acquired less the fair values of the liabilities assumed in excess of the purchase price is allocated proportionately to reduce the values assigned to long-lived assets. If the allocation reduces the long-lived assets to zero, the remainder of the excess is recorded as an extraordinary gain to income. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 203 The effect of reduced depreciation expense on the long- lived assets (for which no circumstances changed requiring an impairment test under SFAS No. 144) to which negative goodwill had been allocated under U.S. GAAP net against the reversals of both amortization and write-offs of negative goodwill recorded in Chile GAAP (over the appropriate useful lives as defined in the first paragraph) 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. Under U.S. GAAP, the capitalization of interest on qualifying assets under construction is required, regardless of whether interest is associated with debt directly related to a project 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 GA AP, 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. As of December 31, 2004, no company was classified as development stage company. For the years ended December 31, 2002 and 2003, the effects of the adjustment 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. Net income related to the amortization of negative goodwill can only be distributed as an additional dividend by the approval of the shareholders, and accordingly, is not included in the calculation of the minimum dividend to be distributed. 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 2004. (n) Capitalized general and administrative expenses Until 1993, under Chile GAAP 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. Under Chilean GAAP the Company has also capitalized other administrative expenses into other long-term assets, which under US GAAP would not be allowed. 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 employee termination benefits related to the restructuring plan announced in 1997. Since that date employees have continued to be made redundant pursuant to this plan. Additionally, during 2003 the Company increased the amount of the accrual recorded under Chilean GAAP. In accordance with U.S. GAAP, at that time in order to recognize a liability at the balance sheet date for the cost to terminate employees involuntarily, there must be a plan that specifically includes notification to employees prior to the balance sheet date. As of December 31, 2002, 2003 and 2004, 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 Chilean GAAP, pursuant to the share transaction contract entered into in 1995 between Endesa-Chile and Endesa Overseas Co. with Enersis Intemational Limited, Chilectra S.A. and Chilectra IntemationaI Limited, Endesa Argentina recognized income related to an adjustment of the share purchase price. Under U.S. GAAP, the contingent price adjustment would be considered a part of the purchase price, and would therefore be offset against the amount of goodwill that was originally determined. As described in paragraph (i), the Company determined goodwill amounts recorded in investments in Argentina were impaired as of December 31, 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 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 204 2002, thus the adjustment in selling price of investment is a basis difference between Chilean and U.S. GAAP that was eliminated after the impairment charge recorded in 2002. • Income and expense accounts are translated at average rates of exchange between the US dollar and local currency. The effects of the adjustments to conform to U.S. GAAP are included under paragraph (gg) below. • 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. (q) Elimination of capitalized interest in Brazil Until 1999, 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 by crediting 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. 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$186,392,592, ThCh$(69,199,468) and ThCh$(56,947,613) for the years ended December 31, 2002, 2003 and 2004, respectively (See Note 23). 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 Form 20-F. (s) Translation of Financial Statements of Investments (t) Derivative instruments 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. The Company engages in derivative activity for hedging purposes. These derivatives are considered accounting hedges under Chilean GAAP. Under Chilean GAAP the accounting treatment of hedging activity is similar to the accounting treatment of fair value hedges and cash flow hedges under SFAS 133. The documentation and hedge effectiveness requirements under Chilean GAAP though are not as burdensome as under SFAS 133. Under SFAS 133 to qualify for hedge accounting strict requirements need to be met, including hedge documentation and effectiveness tests. The Company does not have the documentation and hedge effectiveness requirements to qualify for hedge accounting. Therefore, all derivative instruments have been accounted at fair value with changes in fair value recognized in earnings for US GAAP purposes. The Company has designated under Chilean GAAP certain non- derivative financial instruments as hedges of the foreign currency exposure of net investments in foreign operations. The gain or loss on the non-derivative financial instrument that is designated as a hedge A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 205 is reported as a translation adjustment to the extent it is effective as a hedge, any ineffectiveness is recorded in earnings. This accounting treatment is consistent with SFAS 133. The sales of subsidiaries Infraestruc tura 2000 S.A. and Canutillar Plan did not result in any US GAAP difference adjustment. SFAS 133 also requires that certain embedded derivatives be separated and reported on the balance sheet at fair value and be subject to the same rules as other derivative instruments. 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 under Chilean GAAP. The effects of the adjustment with respect to financial derivatives, commodity derivatives, and embedded derivatives for the years ended December 31, 2002, 2003 and 2004 is included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (gg) below. (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 (u) Fair value of long-term debt assumed presented is included in (gg) below. 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$501,587 the gain obtained from the sale of this subsidiary. The operating income generated by Río Maipo until disposal date amounted to ThCh$2,828,342 (sales amounted to ThCh$14,824,196 less cost of sales amounted to ThCh$11,087,968 and administrative and selling expenses amounted to ThCh$907,886) was reclassified from non-operating income to operating income in accordance with US GAAP (see Note 36 II (k)). (x) Regulated assets and deferred costs The electricity sector in Chile and other countries of operation in Latin America is regulated pursuant to the Chilean and other country electricity laws. Most of the Company’s sales are subject to node price regulation, which is designed to ensure an adequate supply of energy at reasonable, determined prices, which considers a variety of factors. The marginal cost pricing model is not solely based upon costs incurred by the Company, and as a result, the requirements of U.S. GAAP under SFAS No.71, “Accounting for the Effects of Certain Types of Regulation”, related to a businesses whose rates are regulated are not applicable to the Company’s financial statements, except for the Company’s operations in Brazil as described below. As a result of changes in Brazilian Electricity Laws and Regulations, the Company’s distribution subsidiaries in Brazil, Companhia de Electricidad do Rio de Janeiro (Cerj) and Companhia Energética do Ceará (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 Electric 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 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 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 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 206 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 each distribution company is permitted to defer and pass on to 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 uncertainty 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 a greater depreciation expense to be recorded under US GAAP over the remaining estimated useful life of 20 years. The effect of this adjustment is included in the net income and shareholders’ equity reconciliation to US GAAP under paragraph (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. This adjustment corresponds to the reorganization of the Company’s subsidiaries Central Costanera S.A. 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 S.A. Under Chilean GAAP, the Company recorded the transactions under the pooling method, using the book values of the net assets acquired under merger accounting. 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 occurred over various dates from October to December 2002. Under US GAAP the exchange of shares between entities under common control is recorded at book values. However, to the extent that shares in CBA were acquired from third parties, the identifiable assets acquired and liabilities assumed are recorded at fair value using purchase accounting together with the shares issued by the subsidiary Central Costanera S.A. The difference in property, plant and equipment basis between Chilean GAAP and US GAAP results in During 2003, all of the designated assets had been sold therefore eliminating this difference in 2003. The effect of these adjustments is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (gg) below. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 207 (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. met 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 involvement in the operations of Infraestructura 2000 S.A. after its was sold. The Rio Maipo facility was classified as “held for sale” on December 31, 2002. In April, 2003, the Company sold the 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 reclassifying 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 in 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 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. The effect of this adjustment is included in net income and shareholders’ equity reconciliation to US GAAP under paragraph (gg) below. (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 26 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 36 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 increased, 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 difference between the amount contributed and the underlying net book in the company was as negative goodwill, to be amortized over a 20 year period. In accordance with the appropriate guidance, Enersis is allowed to fully amortize 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 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 capital transaction. Consequently the amount of the negative goodwill amortized into income in Chile GAAP is recorded directly as an increase to consolidated equity under US GAAP. The effects in net income of the US GAAP adjustment are presented in note (gg) below. 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 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 208 (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. At the same time the standard requires the Company to capitalize the new costs arising as the result of additional liabilities incurred, such as the activation of a new generation facility, and subsequently allocate that asset retirement cost to expense over the life of the plant based on the useful life of the plant. The accumulated effect of adopting SFAS 143 as of January 1, 2003 is presented in paragraph (gg) below, net of taxes of ThCh$287,502 and minority interest of ThCh$154,377. At December 31, 2003 and 2004, the adjustment to US GAAP income from continuing operations represents the accreted interest expense and depreciation of the costs capitalized for the asset retirement obligations. 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 and shareholders’ equity of the US The effects of this U.S. GAAP adjustment on net income and GAAP adjustment are presented in note (gg) below. shareholders’ equity are presented in note (gg) below. At December 31, 2003 and 2004, the adjustment to US GAAP income from continuing operations represents the accreted interest expense and depreciation of the costs capitalized for the asset retirement obligations. (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. This standard requires the Company to record the fair value of the legal obligation it has to make certain environmental restorations upon closure of its facilities. The fair value of the liability is estimated by discounting the future estimated expenditures related to the restoration. The Company then measures changes in the liability due to passage of time by applying an interest method of allocation to the amount of the liability at the beginning of the period. The interest rate used to measure that change is the credit-adjusted risk-free rate that existed when the liability, or portion thereof, was initially measured. That amount is recognized as an increase in the carrying amount of the liability and the expense is classified as an operating item in the statement of income, referred to as accretion expense. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 209 (gg) Effect of conforming to U.S. GAAP The reconciliation of reported net income required to conform with U.S. GAAP is as follows: As of December 31, Net income (loss) in accordance with Chilean GAAP Reversal of amortization of revaluation of property, plant and equipment (paragraph b) Depreciation of property, plant and equipment and difference in fixed assets value at acquisition date (paragraph c) Amortization of intangibles (paragraph d) Deferred income taxes (paragraph e) Pension and post-retirement benefits (paragraph g) Investments in related companies (paragraph h) Amortization and impairment of goodwill (paragraph i) Amortization of negative goodwill (paragraph j) Capitalized interest (paragraph k) Depreciation capitalized interest (paragraph k) Difference foreign exchange capitalized (paragraph k) Depreciation 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) 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) 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) 2002 ThCh$ (231,635,207) 3,454,430 (5,647,997) 126,135 (21,894,635) 23,945,360 21,596,283 (97,350,605) (85,215,878) (26,166,717) 2,515,596 (10,285,379) 260,422 (6,036,038) 2,027,459 (359,324) 4,649,632 935,211 5,554,202 (53,175,173) (27,653,343) (94,786) — 284,517 2003 ThCh$ 12,779,560 1,653,213 (2,465,204) 126,134 9,411,217 12,152,640 28,083,920 52,416,632 (13,665,702) 10,623,041 (3,088,013) 30,001,749 71,020 (1,335,234) (2,308,448) 12,173 — 533,782 3,573,964 (167,791,585) 24,953,033 (66,299) 501,587 122,715 (53,044,069) 58,955,925 (331,053) (918,516) (153,856) 132,128,313 80,774,318 -— — — — — (270,848) 918,516 (303,472) 22,316,179 5,698,558 (18,146,247) (35,380,018) 178,745 (1,489) (44,474) 2004 ThCh$ 44,307,596 1,848,514 (2,196,372) 1,009,079 11,923,907 (5,423,472) 1,464 53,776,148 1,197,823 7,893,086 (2,167,296) (5,844,604) 247,149 — 2,791,871 (1,673) — 490,048 462,821 (6,727,187) 15,798,123 (138,246) — 229,506 11,398,114 (248,043) — — 22,098,316 (671,673) — — (178,745) 535,211 (637,297) Net income (loss) in accordance with U.S. GAAP before effect of discontinued operations, and cumulative effect of change in accounting principle (341,710,698) 30,217,270 151,774,169 Income from discontinued operations net of taxes and minority interest (paragraph aa) 170,939 70,835 — Net income (loss) in accordance with U.S. GAAP before effect of cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of the tax and minority interest Net income (loss) in accordance with U.S. GAAP (341,539,759) — (341,539,759) 30,288,105 (287,502) 30,000,603 151,774,169 — 151,774,169 Other comprehensive income (loss): Cumulative translation adjustment determined under Chilean GAAP net of minority interest Cumulative translation adjustment related to U.S GAAP adjustments net of minority interest Comprehensive income (loss) in accordance with U.S.GAAP 21,322,955 (12,582,928) (332,799,732) (74,845,570) 52,450,844 7,605,877 (96,275,517) 12,452,098 67,950,750 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 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 210 The reconciliation to conform shareholders’ equity amounts to U.S. GAAP is as follows: Shareholders’ equity in accordance with Chilean GAAP 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 liabilities long term (paragraph g) Investments in related companies (paragraph h and paragraph z) 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) 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) Deferred income (paragraph w) Regulated assets (paragraph x) Effects of minority interest on the U.S. GAAP adjustments (paragraph bb) 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 As of December 31, 2003 ThCh$ 2004 ThCh$ 2,612,101,688 2,559,553,142 (12,464,109) (10,686,076) (8,017,038) (10,845,548) (1,009,079) — (247,951,919) (302,433,018) (13,009,204) (17,437,701) 31,714,485 29,443,314 303,693,155 353,200,284 4,520,451 82,154,857 (405,222,235) (372,929,343) 61,575,186 62,124,455 (14,808,381) (19,849,732) — (8,160,208) (26,953,282) (23,175,518) 90,688 81,380 (7,395,646) (6,282,920) (28,341,554) (14,628,965) (25,541,256) (16,495,956) 1,244,204 4,870,378 (2,788,439) (23,290,784) 1,105,960 4,212,272 (2,324,155) (9,931,912) 227,074,831 223,852,306 145,536,506 134,534,591 178,745 64,263 (537,670) — 598,306 (1,135,913) 2,575,333,984 2,634,543,902 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 211 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 1,199,433,654 879,725,912 2,575,333,984 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ Minimum dividend payable (paragraph m) Negative goodwill Cerj (paragraph dd) Extinguishment of debt (paragraph ee) Cumulative translation adjustment Capital increase 13,091,990 — (8,160,208) — — 35,380,018 18,146,247 — — 8,740,027 (22,394,726) (83,823,419) — 1,634,475,930 (580,624) Net income (loss) in accordance with U.S. GAAP for the year (341,539,759) 30,000,603 151,774,169 Shareholders equity in accordance with U.S.GAAP - December 31 879,725,912 2,575,333,984 2,634,543,902 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, 2003 and 2004, respectively: Goodwill Less: accumulated amortization Goodwill, net Negative goodwill Less: accumulated amortization Negative goodwill, net Amortization expense under Chile GAAP is disclosed in Note 13. (b) Basic and diluted earnings per share: Chilean GAAP (loss) earnings per share U.S. GAAP (loss) earnings per share: 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) As of December 31, 2003 ThCh$ 2004 ThCh$ 1,724,462,233 1,711,291,508 (924,555,085) (977,756,405) 799,907,148 733,535,103 (457,889,564) (450,516,782) 376,674,066 393,780,968 (81,215,498) (56,735,814) For the year ended December 31, 2002 Ch$ (27.94 ) 2003 Ch$ 0.62 2004 Ch$ 1.36 (41.21) 0.02 (41.19) — (41.19) 1.48 0.00 1.48 (0.01 ) 1.47 4.65 — 4.65 — 4.65 8,291,020 8,291,020 32,651,166 20,471,093 32,651,166 32,651,166 (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. 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 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 212 (c) Income taxes: The provision (benefit) for income taxes charged to the results of operations determined in accordance with U.S. GAAP is as follows: 2002 Income tax provision under Chilean GAAP Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ Current income taxes as determined under Chilean GAAP (13,760,757) 64,313 (13,107,651) (2,694,635) (46,843,142) (76,341,872) Deferred income taxes as determined under Chilean GAAP (3,328,058) 35,277,074 (31,391,274) 6,086,915 1,353,131 7,997,788 Total income tax provision under Chilean GAAP (17,088,815) 35,341,387 (44,498,925) 3,392,280 (45,490,011) (68,344,084) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 (2,379,812) 31,498,902 (22,246,395) (25,156,270) (3,611,060) (21,894,635) Deferred tax effect of adjustments to U.S. GAAP 13,683,708 (14,272,973) 22,346,301 21,081,175 37,936,107 80,774,318 Total U.S. GAAP adjustments: 11,303,896 17,225,929 99,906 (4,075,095) 34,325,047 58,879,683 US GAAP reclassifications (1) 303,892 6,308,893 (23,164,381) (16,551,596) Total Income tax provision under U.S. GAAP (5,481,027) 52,567,316 (44,399,019) 5,626,078 (34,329,345) (26,015,997) 2003 Income tax provision under Chilean GAAP Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total Current income taxes as determined under Chilean GAAP (29,057,652) (15,015,433) (9,161,547) (50,037,373) (103,272,005) Deferred income taxes as determined under Chilean GAAP 24,329,322 21,113,119 (16,018,315) 30,618,264 619,631 60,662,021 Total income tax provision under Chilean GAAP (4,728,330) 21,113,119 (31,033,748) 21,456,717 (49,417,742) (42,609,984) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 5,839,435 (1,937,830) 5,456,339 53,272 9,411,216 Deferred tax effect of adjustments to U.S. GAAP (4,784,364) 59,296,937 (19,007,947) (26,947,779) (2,858,289) 5,698,558 U.S. GAAP reclassifications (1) Total U.S. GAAP adjustments: 99,979 5,107,623 5,207,602 1,155,050 57,359,107 (13,551,608) (21,786,884) (2,858,289) 20,317,376 Total Income tax provision under U.S. GAAP (3,573,280) 78,472,226 (44,585,356) (330,167) (52,276,031) (22,292,608) 2004 Income tax provision under Chilean GAAP Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ Current income taxes as determined under Chilean GAAP (991,273) (1,281,754) (17,736,313) (5,115,035) (66,498,093) (91,622,468) Deferred income taxes as determined under Chilean GAAP 7,287,617 (21,829,716) (26,065,776) (2,314,880) (2,695,984) (45,618,739) Total income tax provision under Chilean GAAP 6,296,344 (23,111,470) (43,802,089) (7,429,915) (69,194,077) (137,241,207) U.S. GAAP adjustments: Deferred tax effect of applying SFAS No. 109 1,452,593 8,338,704 2,660,478 (527,868) 11,923,907 Deferred tax effect of adjustments to U.S. GAAP (314,014) 1,484,975 2,857,880 (3,308,529) (1,391,985) (671,673) U.S. GAAP reclassifications (1) Total U.S. GAAP adjustments: 1,138,579 9,823,679 5,518,358 (3,836,397) (3,238,432) 9,405,787 (1,846,447) (1,846,447) Total Income tax provision under U.S. GAAP 7,434,923 (13,287,791) (38,283,731) (11,266,312) (72,432,509) (127,835,420) (1) Certain tax-related expenses under Chilean GAAP are classified as non-operating, but under US GAAP would be classified as income taxes. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 213 Deferred tax assets (liabilities) as of balance sheet dates are summarized s follows: 2003 2004 SFAS No. 109 Applied to Chilean GAAP Balances SFAS No. 109 applied to U.S. GAAP Adjustments Total Deferred Taxes under SFAS No. 109 SFAS No. 109 Applied to Chilean GAAP Balances SFAS No. 109 applied to U.S. GAAP Adjustments Total Deferred Taxes under SFAS No. 109 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Deferred income tax assets: Property, plant and equipment 3,159,631 138,722,121 141,881,752 2,893,469 144,917,275 147,810,744 Regulated assets and related deferred cost (conpanies in Brazil) Negative goodwill Allowance for doubtful accounts Actuarial deficit (companies in Brazil) Deferred income Provision real estate projects Derivative contracts Vacation accrual Post retirement benefits Tax loss carryforwards (1) Contingencies Salaries for construction-in progress — — 29,156,973 12,070,233 7,025,896 2,944,849 312,837 789,056 7,918,866 9,753,529 — — 948,068 — 4,388,443 — 7,918,866 9,753,529 29,156,973 12,070,233 7,973,964 2,944,849 4,701,280 789,056 — — 28,960,469 12,028,415 2,470,957 2,528,523 1,615,743 902,749 3,376,851 3,376,851 — — — — — 3,290,991 — — 28,960,469 12,028,415 2,470,957 2,528,523 4,906,734 902,749 — 5,553,836 5,553,836 — 5,928,818 5,928,818 131,104,976 54,237,427 3,899,439 — — 131,104,976 124,656,238 54,237,427 1,613,700 5,513,139 51,978,843 3,632,328 — — — 124,656,238 51,978,843 3,632,328 Valuation allowance (2,685,345) (1,052,390) (3,737,735) (2,935,126) (2,919,991) (5,855,117) Others Provision for employee benefits 10,027,102 4,360,516 139,381 10,166,483 — 4,360,516 6,502,226 4,168,216 1,579,806 8,082,032 — 4,168,216 Total deferred income tax assets 256,403,590 167,985,554 424,389,144 239,403,050 156,173,750 395,576,800 Deferred income tax liabilities: Property, plant and equipment (2) 364,093,484 37,854,634 401,948,118 386,681,353 105,043,048 491,724,401 Severance indemnities Regulated assets Finance costs Derivative contracts Bond discount Cost of studies Imputed interest on construction With-holdings Materials used Capitalized expenses Capitalized interest Post retirement benefits Others 1,953,906 15,837,943 10,904,732 989,222 1,901,990 8,180,400 4,664,007 7,113 973,913 637,484 30,387 1,984,293 — — 319,064 — — — — — — 15,837,943 10,904,732 1,308,286 1,901,990 8,180,400 4,664,007 7,113 973,913 637,484 1,886,652 14,658,884 12,982,334 — 1,836,701 8,107,213 4,293,140 — 895,914 556,006 — — — — — — — — — — 1,886,652 14,658,884 12,982,334 — 1,836,701 8,107,213 4,293,140 — 895,914 556,006 1,449,633 19,948,860 21,398,493 1,899,692 21,111,245 23,010,937 — 1,358,349 9,078,080 792,387 1,358,349 9,870,467 — — — 6,792,158 261,058 7,053,216 Total deferred income tax liabilities 420,671,907 60,303,681 480,975,588 440,590,047 126,415,351 567,005,398 Net deferred assets (liabilities) (164,268,317) 107,681,873 (56,586,444) (201,186,997) 29,758,399 (171,428,598) Complementary Account 210,097,286 (210,097,286) — 197,656,826 (197,656,826) — Net deferred assets (liabilities) 45,828,969 (102,415,413) (56,586,444) (3,530,171) (167,898,427) (171,428,598) (1) (2) 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. In September 2004, the Peruvian tax court ruled invalid the tax basis of certain assets held by Edegel S.A. Based on this ruling, the Company has increased the long-term deferred tax liability ThCh$77,634,406, in order to reflect the write-off of the corresponding tax-basis assets held in Peru. As such estimate of future deductible amounts was determined prior to the acquisition of Edegel in connection with the acquisition of Endesa-Chile in 1999, the Company has adjusted goodwill by a corresponding amount in accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”) and EITF 93-7 “Uncertainties Related to Income Taxes in a business Combination”. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 214 A reconciliation of the U.S. GAAP Statutory Income Tax rate to the Company’s effective tax rate on net income is as follows: 2002 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ Statutory US GAAP tax 68,847,523 (171,618) (13,442,787) 76,620,358 (7,005,029) 124,848,447 Effect of higher foreign tax rates (441,306) (203,795) (14,703,049) 59,796,061 7,143,521 51,591,432 Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes (7,069,748) 24,178,055 (585,481) (2,000,668) (14,020,488) 501,670 Non-taxable items Non-deductible items (2) Prior years income tax Other US GAAP reclassifications (1) 1,313,507 (8,104,518) (8,605,036) (45,526,623) 206 (60,922,464) (67,141,281) 36,530,588 (7,233,598) (90,343,074) 4,200,976 (123,986,389) (2,763,901) 1,470,287 303,892 — (1,402,329) — 527,617 (3,638,613) 338,604 1,573,261 771,131 (2,011,767) 2,141,516 — — 6,308,893 (23,164,381) (16,551,596) Tax (benefit) expense at effective tax rate (5,481,027) 52,567,316 (44,399,019) 5,626,078 (34,329,345) (26,015,997) 2003 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ Statutory US GAAP tax (55,973,625) 28,949,060 (13,034,547) 8,394,468 (12,859,850) (44,524,494) Effect of higher foreign tax rates (1,259,732) 32,816,456 (13,417,384) 14,757,804 (17,146,468) 15,750,676 Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes 7,991,348 (16,638,288) (1,432,392) (1,980,860) 149,849 (11,910,343) Non-taxable items Non-deductible items (2) Prior years income tax Other 22,489,830 36,635,088 5,291,050 (1,189,035) 17,386,812 80,613,745 25,986,780 (2,368,383) (20,096,695) (24,471,898) (36,983,894) (57,934,090) (1,416,251) — (364,578) — — (1,780,829) (1,491,609) (921,707) (1,530,810) (948,269) (2,822,480) (7,714,875) US GAAP reclassifications (1) 99,979 — — 5,107,623 — 5,207,602 Tax (benefit) expense at effective tax rate (3,573,280) 78,472,226 (44,585,356) (330,167) (52,276,031) (22,292,608) 2004 Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ Statutory US GAAP tax (52,921,771) 2,078,660 (19,086,279) (167,358) (24,617,977) (94,714,725) Effect of higher foreign tax rates — 3,333,513 (18,326,510) 9,964,750 (30,024,799) (35,053,046) Increase (decrease) in rates resulting from: Price-level restatement not accepted for tax purposes (150,058) (3,082,286) (8,635,786) — (7,372,806) (19,240,936) Non-taxable items Non-deductible items (2) Prior years income tax Other 33,175,388 (13,869,938) (8,193,977) (18,189,941) (6,023,497) (13,101,965) 25,718,937 1,229,903 1,071,166 (3,163,785) 1,511,300 26,367,521 (1,210,217) — — — — (1,210,217) 2,822,644 (2,977,643) 14,887,655 290,022 (4,058,283) 10,964,395 US GAAP reclassifications (1) — — — — (1,846,447) (1,846,447) Tax (benefit) expense at effective tax rate 7,434,923 (13,287,791) (38,283,731) (11,266,312) (72,432,509) (127,835,420) (1) 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. (2) This represents mainly deductible temporary differences related to investments in subsidiaries that are permanent in nature for which deferred tax asset are not recognized. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 215 (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: • Generation • Distribution Revenue is recognized when energy and power is provided at rates specified under contract terms or prevailing market rates. • Distribution – Non Operating Revenues Revenue is recognized as services are provided, such as public light posts, telephone poles, and other services related to distribution services. • Engineering Services and Real Estate • Engineering Services and Real Estate • Corporate and other Revenue is recognized as services are provided, or when 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 electricity-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. 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: 2002 Generation Distribution Engineering services and real estate Corporate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Sales to unaffiliated customers 750,254,737 1,772,402,691 35,361,635 15,481,188 — 2,573,500,251 Intersegment sales Total revenues 220,912,410 51,822,277 73,674,941 44,370,385 (390,780,013) — 971,167,147 1,824,224,968 109,036,576 59,851,573 (390,780,013) 2,573,500,251 Operating income 348,487,932 189,963,327 13,850,922 (114,958) (767,148) 551,420,075 Participation in net income of affiliate companies 8,842,841 — — (287,761) — 8,555,080 Depreciation and amortization 229,162,303 530,614,762 1,460,962 114,728,646 13,268,373 889,235,046 Identifiable assets including investment in related companies 6,754,179,495 6,271,267,215 145,749,287 4,446,283,439 (4,561,173,325) 13,056,306,111 Capital expenditures 139,611,864 188,269,772 781,709 458,617 — 329,121,962 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 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 216 2003 Generation Distribution Engineering services and real estate Corporate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Sales to unaffiliated customers 659,643,635 1,638,545,568 39,316,467 10,849,788 — 2,348,355,458 Intersegment sales 283,644,798 12,707,695 66,311,802 40,005,698 (332,574,181) 70,095,812 — — 17,954,716 417,227,416 Total revenues Operating income Participation in net income of affiliate companies 943,288,433 1,651,253,263 105,628,269 50,855,486 (332,574,181) 2,418,451,270 346,973,669 193,877,213 13,202,873 (5,205,540) 649,579 549,497,794 17,803,955 — — 150,761 Depreciation and amortization 171,258,122 213,378,872 1,502,687 31,087,735 Identifiable assets including investment in related companies 5,601,969,236 5,318,737,230 151,128,970 3,995,294,083 (4,084,236,232) 10,982,893,287 Capital expenditures 134,418,313 130,100,950 540,738 195,288 — 265,255,289 2004 Generation Distribution Engineering services and real estate Corporate and other Eliminations Consolidated ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Sales to unaffiliated customers 750,035,825 1,844,311,022 8,883,757 43,937,779 — 2,647,168,383 Intersegment sales Total revenues 282,626,259 14,549,335 1,470,641 106,381,890 (343,271,164) 61,756,961 1,032,662,084 1,858,860,357 10,354,398 150,319,669 (343,271,164) 2,708,925,344 Operating income 369,025,170 261,413,749 (85,351) 1,047,420 2,800,643 634,201,631 Participation in net income of affiliate companies 19,203,023 (19,060,445) 8,669 131,864,436 (100,869,800) 31,145,883 Depreciation and amortization 157,553,743 209,967,876 2,507,494 52,357,839 — 422,386,952 Identifiable assets including investment in related companies 5,317,659,366 5,106,142,327 78,281,860 4,080,676,106 (4,075,234,520) 10,507,525,139 Capital expenditures 96,135,574 164,655,280 19,789 4,413,083 710,627 265,934,353 A summary of activities by geographic area is as follows: 2002 Total revenues Chile ThCh$ Argentina ThCh$ Perú ThCh$ Brazil ThCh$ Colombia ThCh$ Total ThCh$ 827,643,118 308,125,605 302,735,183 646,296,230 488,700,115 2,573,500,251 Long lived assets (net) (1) 2,458,443,985 1,606,522,993 1,279,353,913 2,111,528,359 2,771,859,833 10,227,709,083 2003 Total revenues 875,783,391 299,650,596 255,971,660 564,368,715 415,367,353 2,411,141,715 Long lived assets (net) (1) 2,189,534,487 1,250,382,874 1,024,269,997 1,636,909,696 2,197,672,469 8,298,769,523 2004 Total revenues 884,309,131 328,721,018 287,398,792 668,872,239 539,624,164 2,708,925,344 Long lived assets (net) (1) 2,240,290,819 1,097,975,979 919,907,082 1,476,956,320 1,949,691,742 7,684,821,942 (1) Long-lived assets include property, plant and equipment. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 217 (e) Concentration of risk: (f) Schedule of debt maturity: 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, 2002, 2003 and 2004. Following is a schedule of debt maturity in each of the next five years and thereafter: 2005 2006 2007 2008 2009 Thereafter Total ThCh$ 432,697,782 635,432,193 201,103,409 511,403,165 489,848,777 1,424,978,904 3,695,464,230 (g) Disclosure regarding interest capitalization: Interest expense incurred Interest capitalized under Chilean GAAP Interest capitalized under U.S. GAAP (h) Cash flow information: Year ended December 31, 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ 460,565,169 430,943,444 360,140,223 62,310,644 36,413,927 10,741,338 21,364,379 7,203,684 15,096,770 (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, 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ Cash provided by operating activities under Chilean GAAP 649,911,662 588,838,896 618,005,504 Cash provided by operating activities under U.S. GAAP 649,911,662 588,838,896 618,005,504 Cash used in financing activities under Chilean GAAP (295,087,517) (446,651,514) (189,124,246) Cash used in financing activities under U.S. GAAP (295,087,517) (446,651,514) (189,124,246) Cash provided by (used in) investing activities under Chilean GAAP (348,753,732) 90,584,783 (193,905,575) Time deposits (1) (10,535,580) — — Cash provided by (used in) investing activities under U.S. GAAP (359,289,312) 90,584,783 (193,905,575) (1) Time deposits with maturities longer than 90 days 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 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 218 (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 Year ended December 31, 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ 49,883,395 27,029,488 56,494,414 150,760,242 262,660,971 450,743,859 1,597,691 26,747,365 11,434,635 38,150,754 12,321,537 27,677,527 Total cash and cash equivalents under Chilean GAAP 228,988,693 339,275,848 547,237,337 Time deposits with original maturities longer than 90 days (10,535,580) — — Total cash and cash equivalents under US GAAP 218,453,113 339,275,848 547,237,337 (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 leases Years ended December 31, 2002 ThCh$ 2003 ThCh$ 2004 ThCh$ 471,608,186 402,812,319 314,856,910 141,222,264 406,298,084 538,426,126 — — 27,496,261 (i) Disclosures about fair value of financial instruments The following methods and assumption were used to estimate the fair value of each class of financial instruments as of December 31, 2003 and 2004 for which it is practicable to estimate that value: • Cash The fair value of the Company’s cash is equal to its carrying value. • Time deposits The fair value of time deposits approximates carrying value due to the relatively short-term nature. • Marketable securities The fair value of marketable securities is based on quoted market prices of the mutual money market funds held and approximates carrying value. • Long-term accounts receivable The fair value of long-term accounts receivable was estimated using the interest rates that are currently offered for loans with similar terms and remaining maturities. • Long-term debt The fair value of long-term debt was based on rates currently available to the Company for debt with similar terms and remaining maturities. • Derivative instruments Estimates of fair values of derivative instruments for which no quoted prices or secondary market exists have been made using valuation techniques such as forward pricing models, present value of estimated future cash flows, and other modeling techniques. These estimates of fair value include assumptions made by the Company about market variables that may change in the future. Changes in assumptions could have a significant impact on the estimate of fair values disclosed. As a result such fair value amounts are subject to significant volatility and are highly dependent on the quality of the assumptions used. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 219 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 2003 2004 Carrying amount ThCh$ Fair Value ThCh$ Carrying amount ThCh$ Fair Value ThCh$ 27,029,488 27,029,488 56,494,414 56,494,414 262,660,971 262,660,971 450,743,859 450,743,859 11,434,635 11,434,635 12,321,537 12,321,537 478,849,624 478,849,624 528,740,129 528,740,129 8,571,693 96,549,123 8,571,693 96,549,123 2,828,014 63,814,202 2,828,014 63,814,202 Amounts due from related companies 149,818,057 149,818,057 114,385,763 114,385,763 Long-term accounts receivable Accounts payable and other Notes payable Long-term debt Derivatives instruments (j) Derivative instruments 131,133,420 131,133,420 125,910,089 125,910,089 (224,067,844) (224,067,844) (256,402,004) (256,402,004) (170,573,373) (170,573,373) (190,517,294) (190,517,294) (3,899,870,860) (4,033,070,487) (3,710,586,142) (3,924,465,446) 5,913,202 5,913,202 (65,211,933) (65,211,933) 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 Note 36 I 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. 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 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 220 The following is a summary of the Company’s derivative contracts as of December 31, 2003 and 2004. Embedded derivatives Financial derivatives Investment in related companies Derivative instruments U.S.GAAP Shareholders equity adjustment Embedded derivatives Financial derivatives Investment in related companies Distribution ThCh$ (1,518,999) (7,840,514) 2003 Generation ThCh$ Total ThCh$ (7,273,304) (8,792,303) (2,995,237) (10,835,751) (9,359,513) (10,268,541) (19,628,054) — (9,359,513) 37,786,158 27,517,617 37,786,158 18,158,104 Distribution ThCh$ 2004 Generation ThCh$ Total ThCh$ 2,108,644 (20,441,709) (18,333,065) (54,316,141) (9,058,683) (63,374,824) (52,207,497) (29,500,392) (81,707,889) — 31,909,042 31,909,042 Derivative instruments U.S.GAAP Shareholders equity adjustment (52,207,497) 2,408,650 (49,798,847) The following is the reconciliation of the Company’s derivative contracts from Chile GAAP to US GAAP: Embedded derivatives Financial derivatives Total Embedded derivatives Financial derivatives Shareholders equity adjustment 2003 Chile GAAP ThCh$ Adjustment ThCh$ US GAAP ThCh$ — (8,792,303) (8,792,303) 5,913,202 5,913,202 (16,748,953) (10,835,751) (25,541,256) (19,628,054) Chile GAAP ThCh$ 2004 Adjustment ThCh$ US GAAP ThCh$ — (18,333,065) (18,333,065) (65,211,933) 1,837,109 (63,374,824) (65,211,933) (16,495,956) (81,707,889) A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 221 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 not 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 electricity generators or distributors 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. 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 36 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 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. 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 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 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 222 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. 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 accounting treatment for such operations is the same under Chile GAAP and U.S. GAAP. (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. Recovered taxes included in other non-operating revenues would be recorded as part of income tax expense under U.S. GAAP. Colombian equity tax included in non-operating expenses in 2004 would be recorded as part of income tax expense 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. Additionally, the extraordinary loss recognized under Chilean GAAP in 2002 would be reclassified to income taxes as the Colombian democracy tax does not meet the definition of extraordinary in accordance with US GAAP. Under Chilean GAAP a company is permitted to classify as extraordinary any items that are considered unusual in their nature or infrequent in occurrence. US GAAP is much more stringent than Chilean GAAP in allowing items to be considered extraordinary and the extraordinary loss recognized under Chilean GAAP in 2002 would be reclassified to income taxes as the Colombian democracy tax does not meet the definition of extraordinary in accordance with US GAAP. The following reclassifications included in the column labeled “Reclassifications” disclose amounts using a U.S. GAAP presentation, although the amounts displayed have been determined in accordance with Chilean GAAP: Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net Amortization of negative goodwill Net loss before extraordinary items Extraordinary items Net loss 2002 Chilean GAAP ThCh$ Reclassification ThCh$ $ U.S. GAAP ThCh 551,420,075 (458,618,194) 92,801,881 (824,607,845) 559,654,833 (264,953,012) (68,344,084) (16,551,594) (84,895,678) 16,856,520 — — 8,555,082 116,204,508 (116,204,508) 16,856,520 8,555,082 — (208,470,826) (23,164,381) (231,635,207) (23,164,381) 23,164,381 — (231,635,207) — (231,635,207) A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 223 2003 Chilean GAAP ThCh$ Reclassification ThCh$ U.S. GAAP ThCh$ 549,497,794 24,199,788 573,697,582 (466,280,940) (42,609,984) (80,282,913) 5,093,497 5,207,602 (461,187,443) (37,402,382) — (80,282,913) Operating income Non-operating expense, net Income taxes Minority interest Equity participation in income of related companies, net — 17,954,716 17,954,716 Amortization of negative goodwill Net income Operating income Non-operating expense, net Income taxes Minority interest 52,455,603 (52,455,603) — 12,779,560 — 12,779,560 2004 Chilean GAAP ThCh$ Reclassification ThCh$ U.S. GAAP ThCh$ 634,201,631 (67,123,350) 567,078,281 (368,652,741) 54,930,816 (313,721,925) (137,241,207) (1,846,447) (139,087,654) (101,106,989) — (101,106,989) Equity participation in income of related companies, net — 31,145,883 31,145,883 Amortization of negative goodwill Net income 17,106,902 44,307,596 (17,106,902) — — 44,307,596 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. The amounts receivable and payable related to financial derivatives have been recorded in the balance sheet at their gross amounts, whereas, these amounts would have been recorded at their net amounts by financial institution under US GAAP, provided the contracts have net settlement provisions. Negative goodwill would be presented as a deduction to property, plant, and equipment instead of a separate line-item in other assets. These reclassifications exclude consolidation of development stage companies, the effect of which is immaterial. The effect of the following reclassifications included in the column labeled “Reclassifications” discloses amounts using a U.S. GAAP presentation although the amounts displayed have been determined in accordance with Chilean GAAP: 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 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 224 Current assets Property, plant an equipment, net Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholder’s equity 2003 Chilean GAAP ThCh$ $ Reclassification ThCh U.S. GAAP ThCh$ 1,156,481,276 (51,265,586) 1,105,215,690 8,298,769,523 (64,654,495) 8,234,115,028 1,527,642,488 62,433,606 1,590,076,094 10,982,893,287 (53,486,475) 10,929,406,812 1,155,329,804 (11,757,449) 1,143,572,355 3,782,447,926 (41,729,026) 3,740,718,900 3,433,013,869 2,612,101,688 — — 3,433,013,869 2,612,101,688 Total liabilities and shareholders’ equity 10,982,893,287 (53,486,475) 10,929,406,812 Current assets Property, plant an equipment, net Other assets Total assets Current liabilities Long-term liabilities Minority interest Shareholder’s equity 2004 Chilean GAAP ThCh$ $ Reclassification ThCh U.S. GAAP ThCh$ 1,519,081,190 (53,518,614) 1,465,562,576 7,684,821,942 (41,032,908) 7,643,789,034 1,303,622,007 80,508,030 1,384,130,037 10,507,525,139 (14,043,492) 10,493,481,647 1,018,810,914 (241,374) 1,018,569,540 3,804,155,081 (13,802,118) 3,790,352,963 3,125,006,002 2,559,553,142 — — 3,125,006,002 2,559,553,142 Total liabilities and shareholders’ equity 10,507,525,139 (14,043,492) 10,493,481,647 (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: 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: Severance indemnities I) Electrical rate service 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, 2002, 2003 and 2004, and an estimated average service period based on the years of services for the Company. 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. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S II) Medical benefits Followings is a schedule of estimated pay–out of pension benefits in each of the next five years: 225 2005 2006 2007 2008 2009 Thereafter Total As of December 31, 2004 ThCh$ 25,040,759 25,350,622 26,205,461 26,789,273 27,555,039 108,176,149 239,117,303 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. T he Company has recognized liabili ties rela ted 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. 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 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 226 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, 2003 Pension Benefits Other Benefits Unfunfed ThCh$ Funded ThCh$ Total ThCh$ Total ThCh$ (37,809,722) (177,171,124) (214,980,846) (30,332,309) — 122,072,571 122,072,571 — (37,809,722) (55,098,553) (92,908,276) (30,332,309) (59,613,434) (68,737,172) (128,350,607) (35,726,334) 420,320 8,560,762 (11,936,422) 2,403,135 — 680,566 11,820,243 (17,491,053) 10,658,355 293,417 1,100,886 20,381,005 (29,427,475) 13,061,490 293,417 269,465 4,136,709 1,453,111 50,387 (1,788,775) (31,605,436) Benefit (obligations) at December 31 (60,165,640) (62,775,645) (122,941,285) 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 (58,992,700) (178,727,451) (237,720,151) (30,885,705) — 122,072,571 122,072,571 (58,992,700) (56,654,880) (115,647,581) (1,792,630) (16,333,965) 619,690 10,213,200 (18,126,595) 10,832,891 (60,165,640) (62,775,645) (122,941,285) — (30,885,705) (12,519,943) 11,800,212 (31,605,436) — — — — — — — (27,663) (7,633,161) — (3,645,636) (629,963) (11,936,422) 96,482,018 (11,325,944) 36,509,808 9,257,830 3,922,852 (12,773,994) 122,072,571 (1,358,526) (16,654,126) 25,672,370 (23,119,488) (2,031,282) (17,491,052) 96,482,018 (11,325,944) 36,509,808 9,257,830 3,922,852 (12,773,994) 122,072,571 (1,386,188) (24,287,287) 25,672,370 (26,765,124) (2,661,245) (29,427,474) — — — — — — — 759,480 235,724 — (360,131) 818,037 1,453,111 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 Colombia 12.8% 7.5% 11.3% 7.5% Brazil 11.3% 5.5% – 4.5% Chile 9.5% 3.0% – 3.0% Other Benefits Brazil 11.3% – Colombia 12.8% Chile 9.5% – – 3.0% 4.5% 7.5% A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 227 At December 31, 2004 Pension Benefits Other Benefits Non Contributory Contributory Total Total (56,999,482) (192,477,205) (249,476,687) (35,747,958) — 128,088,182 128,088,182 — (56,999,482) (64,389,023) (121,388,506) (35,747,958) (60,165,640) (62,775,645) (122,941,285) (31,605,436) (924,751) 8,181,886 (2,799,071) 721,624 — 1,951,985 1,908,253 (16,782,199) 16,267,061 (41,248) 1,027,234 10,090,139 (19,581,270) 16,988,685 (41,248) (473,971) (284,233) (3,451,452) 4,122,302 (8,034,793) 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 (54,985,952) (59,471,793) (114,457,745) (39,727,584) Funded Status of the Plans Projected 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 Service cost Interest cost Expected return on assets Amortization gain (loss) Amortization of transition asset Net periodic expenses (56,999,482) (180,867,381) (237,866,863) (38,719,674) — 128,088,182 128,088,182 — (56,999,482) — 2,013,530 (52,779,199) (17,340,605) 10,648,011 (109,778,681) (17,340,605) 12,661,541 (54,985,952) (59,471,793) (114,457,745) (38,719,674) 9,174,116 (10,182,026) (39,727,584) — — — — — — — (638,721) (7,199,307) — 5,038,957 — (2,799,071) 122,072,571 (12,737,533) 12,601,408 7,373,920 2,624,397 122,072,571 (12,737,533) 12,601,408 7,373,920 2,624,397 (3,846,581) (3,846,581) 128,088,182 128,088,182 (1,395,438) (2,034,159) (18,539,098) (25,738,405) 26,441,379 (15,412,512) (7,876,530) (16,782,199) 26,441,379 (10,373,555) (7,876,530) (19,581,270) — — — — — — — (497,147) (985,671) (1,201,637) (766,997) — (3,451,452) 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 Colombia Brazil Chile Brazil Colombia 6.5% 4.0% — 2.5% 11.9% 6.8% — 6.8% 10.2% 5.2% 10.2% 4.0% 6.5% 4.0% — 2.5% 10.2% 5.2% — 4.0% 11.9% 6.8% — 6.8% 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 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 228 (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, 2002, 2003 and 2004 (in thousands of constant Chilean pesos as of December 31, 2004). Beginning balance Credit (charge) for the period Ending balance Beginning balance Credit (charge) for the period Ending balance Beginning balance Credit (charge) for the period Ending balance 2002 Chilean GAAP cumulative translation adjustment Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 30,282,154 21,322,955 51,605,109 ThCh$ (2,216,472) (12,582,928) (14,799,400) 2003 ThCh$ 28,065,682 8,740,027 36,805,709 Chilean GAAP cumulative translation adjustment Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ 51,605,109 (74,845,570) (23,240,461) ThCh$ (14,799,400) 52,450,844 37,651,444 2004 ThCh$ 36,805,709 (22,394,726) 14,410,983 Chilean GAAP cumulative translation adjustment Effect of U.S. GAAP adjustments on cumulative translation adjustment Accumulated other comprehensive income (loss) ThCh$ (23,240,461) (96,275,517) (119,515,978) ThCh$ 37,651,444 12,452,098 50,103,542 ThCh$ 14,410,983 (83,823,419) (69,412,436) The Company does not recognize deferred tax assets associated to cumulative translation adjustment as the investment they are associated with are permanent in nature. (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. 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. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S In 2002, the Endesa Chile (Enersis Subsidiary) committed to a plan to dispose the 60% equity participation it held in the consolidated subsidiary, Infraestructura Dos Mil S.A. It was accounted for as discontinued operations in accordance with SFAS No. 144 and, accordingly, amounts in reconciliation of net income to US GAAP and the additional disclosure notes required under US GAAP for all periods shown, reflect that component as a discontinued operation. The major classes of discontinued consolidated assets, consolidated liabilities and minority interest included in the Chilean GAAP Endesa Chile consolidated Balance Sheet are as follows: 229 As of December 31, 2002 ThCh$ 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 196,765 15,290,034 36,601,387 174,435,826 35,633 18,692,185 245,251,830 76,792,885 100,581,027 864,514 754,838 178,993,264 The major classes of consolidated revenues and expenses included in the US GAAP Enersis consolidated Income Statement are as follows: 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 2002 ThCh$ 20,914,128 (10,312,883) 10,601,245 (1,355,803) 9,245,442 (7,765,412) 1,480,030 (1,006,734) (302,357) 170,939 As of December 31, 2003 ThCh$ 2004 ThCh$ — — — — — — — — — — — — — — — — — — — — 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 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 230 (o) Goodwill and intangible assets As discussed in Note 36 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 in 2002 of SFAS No. 142, due to changes in circunstances, the Company recognized a non-cash charge of ThCh$615,389,513 to reduce the carrying value of goodwill. In calculating the impairment charge, the fair value of the impaired reporting units underlying the segments were estimated using discounted cash flow methodology. The ThCh$615,389,513 goodwill impairment is associated entirely with goodwill associated with investments in Argentina and Brazil. The impairment reflects the decline in the Company’s revenues and forecasted cash flows in their Argentina and Brazilian subsidiaries and the increase in inflation and interest rates and decreasing expectations of the currencies in Argentina and Brazil. Prior to performing the review for impairment, SFAS 142 required that all goodwill deemed to be related to the entity as a whole be assigned to all of the Company’s reporting units, including the reporting units of the acquirer. A summary of the changes in the Company’s goodwill under U.S. GAAP during the year ended December 31, 2003 and 2004, by country of operation and segment is as follows: Goodwill by Country Chile Colombia Perú Total Goodwill by Segment Generation Distribution Other Total Acquisitions (Disposals) 2003 Translation adjustment Impairment December 31, ThCh$ ThCh$ ThCh$ ThCh$ January 1, ThCh$ 1,035,214,601 (11,216,517) — 75,058,126 22,054,183 — — (16,371,275) (4,010,358) 1,132,326,910 (11,216,517) (20,381,633) — — — — 1,023,998,084 58,686,851 18,043,825 1,100,728,760 January 1, ThCh$ 948,462,530 Acquisitions (Disposals) ThCh$ 76,503 2003 Translation adjustment ThCh$ (9,455,368) 183,799,541 (11,293,020) (10,926,265) 64,839 — — 1,132,326,910 (11,216,517) (20,381,633) Impairment December 31, ThCh$ ThCh$ — — — — 939,083,665 161,580,256 64,839 1,100,728,760 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 231 2004 Goodwill by Country January 1, Acquisitions (Disposals) Translation adjustment Impairment December 31, Chile Colombia Perú Total ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 1,023,998,084 77,634,406 — 58,686,851 (12,042,932) (3,927,317) 18,043,825 — (1,519,204) 1,100,728,760 65,591,474 (5,446,521) — — — — 1,101,632,490 42,716,602 16,524,621 1,160,873,713 Goodwill by Segment January 1, (Disposals) 2004 Acquisitions adjustment Impairment Translation December 31, Generation Distribution Other Total ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ 939,083,665 77,634,406 (3,581,620) 161,580,256 (12,042,932) (1,864,901) 64,839 — — 1,100,728,760 65,591,474 (5,446,521) — — — — 1,013,136,451 147,672,423 64,839 1,160,873,713 The Company’s intangible assets were ThCh$79,100,256 and ThCh$80,708,810 and related accumulated amortization were ThCh$40,254,130 and ThCh$44,013,845 as of December 31, 2003 and 2004, respectively. There is no difference between Chilean and U.S. GAAP in the amortization of intangible assets because all of the Company’s intangible assets are subject to amortization, since they relate to finite contracts or concessions. (p) Asset retirement obligations As discussed in Note 36 paragraph (ff), the Company adopted SFAS No. 143 effective January 1, 2003. The following table describes all changes to the Company’s U.S. GAAP asset retirement obligation during the year ended December 31, 2003 and 2004: Balance as of January 1, Cumulative Translation Adjustment Liabilities incurred in the period Accretion expense Balance as of December 31, As of December 31, 2003 ThCh$ (602,829) 109,633 — (44,474) (537,670) 2004 ThCh$ (537,670) 39,054 — (637,297) (1,135,913) 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 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 232 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): As of December 31, 2002 ThCh$ Pro forma amounts assuming the accounting change is applied retroactively net-of-tax: Net income (loss) Net income (loss) per common share – basic and diluted (341,592,536) (41.20) (q) Recent accounting pronouncements The following new accounting standards have been adopted by the Company during the year-ended December 31, 2004 and the impact of such adoption, if applicable, has been presented in the accompanying consolidated financial statements. i. In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”),an interpretation of Accounting Research bulletin No. 51, “Consolidated Financial Statement”, which requires the consolidation by a business enterprise of variable interest entities, if the business enterprise is the primary beneficiary. The FASB has amended FIN 46, now known as FIN 46 Revised December 2003 (“FIN 46(R)”). For the purpose of analyzing investments in potential variable entities formed after January 31, 2003, the Company has applied the provisions of FIN 46 and FIN 46(R) as of January 1, 2004. For the purpose of analyzing potential variable interest entities previously defined as special purpose entities (“SPE’s”) created before February 1, 2003; the Company has applied the provisions of FIN 46 and FIN 46(R) for the period beginning January 1, 2004. The Company has also applied the provisions of FIN 46 and FIN 46(R) in determining whether the Company holds potential interest in variable interest entities not previously defined as SPE’s for the period ended December 31, 2004. The adoption of FIN 46(R) did not have a material impact on the Company’s consolidating financial position, results of operations or cash flows. ii. In December 2004, the FASB deferred the issuance of their final standard on earnings per share SFAS No. 128R, Earnings per Share, an amendment to FAS 128. The final standard is expected to be effective in 2005 and will require retrospective application for all prior periods presented. The significant proposed changes to the EPS computation are changes to the treasury stock method and contingent share guidance for computing year-to-date diluted EPS, removal of the ability to overcome the presumption of share settlement when computing diluted EPS when there is a choice of share or cash settlement and inclusion of mandatorily convertible securities in basic EPS. The Company is currently evaluating the proposed provisions of this amendment to determine the impact on its consolidated financial statements. iii. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. APB Opinion No. 29, Accounting for Nonmonetary Transactions, provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. Under APB Opinion No. 29, an exchange of a productive asset for a similar productive asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception and replaces it with an exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective prospectively for nonmonetary asset exchanges occurring in fiscal years beginning January 1, 2006 for the Company. iv. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS No. 151), to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) relating to inventory pricing. SFAS No. 151 requires that such items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” and requires that the allocation of fixed production overheads to inventory be based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the provisions of this pronouncement to determine the effects on its financial condition, statements of operations, and cash flows. v. In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently evaluating the impact of adopting this interpretation. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 233 (r) Subsequent events On May 24, 2005, the Board of Directors of Enersis S. A. approved the plan to reorganize its subsidiaries in Brazil, which seeks to simplify the shareholding structure of our Brazilian companies by having all of them become subsidiaries of a new Brazilian holding company, Endesa Brasil S.A.. Our Brazilian companies are currently owned by Endesa Internacional (our parent company, and a subsidiary of ENDESA, S.A.), Endesa-Chile, Chilectra and Enersis (the “Contributing Shareholders”). The initial intention is for Endesa- Brasil to be ultimately owned approximately as follows: Endesa-Chile, Endesa Internacional and Chilectra would have voting interests of 33.6%, 23.7% and 19.2%, respectively. Enersis on a stand-alone basis, would have a 23.5% interest. Because of Enersis’ interests in both Endesa-Chile and Chilectra, Enersis would hold majority control over Endesa-Brasil, and would consolidate the company. Completion of the Brazilian reorganization is subject to receipt of regulatory approvals in Brazil 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 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 234 C O N S O L I D A T E D M A T E R I A L I N F O R M A T I O N EN ERSIS S. A . ( PARENT COMPANY) Capital Increase of Cerj The company informed the regulatory authority on March 1 and 25, 2004 about progress and the conclusion of the capital increase of the Brazilian electricity distribution subsidiary, Cerj, as follows: 1. 2. 3. 4. The Brazilian subsidiary of Enersis S.A., Companhia de Eletricidade do Río de Janeiro S.A. (Cerj) has made and concluded a capital increase amounting to BR$710,000,000 (approximately US$243 million) through the issue of 1,339,622,641,509 new common shares at BR$0.53 for every 1,000 shares. O n F e b r u a r y 2 7, 20 0 4 , a n d w i t h i n t h e f i n a n c i a l strengthening plan for its subsidiary Cerj, Enersis subscribed, through its subsidiary Enersis Internacional, for a total of 1,335,849,056,604 shares in the new issue of Cerj, corresponding to the whole of the rights of the Contolling Group (99.3% approximately) in this company. Endesa Spain, Electricidade de Portugal S.A. and Chilectra S.A., (the members of the Controlling Group) had previously ceded their preemptive rights to Enersis which therefore subscribed for its own rights and those thus ceded to it. In addition, Enersis, acting as above, subscribed during the offer of the remaining portion of this capital increase that was not acquired by the minority shareholders in Cerj, i.e. a further 3,771,390,630 common shares. Enersis, through its subsidiary Enersis Internacional, therefore subscribed for a total of 1,339,620,447,234 new Cerj common shares. Enersis has paid for the shares subscribed for through the capitalization of various loans that had made indirectly to Cerj. Enersis will transfer to its subsidiary Chilectra, operating directly or through its agency and 10 subsidiaries, 760,255,861,477 shares issued by Cerj that were recently subscribed by Enersis in the above capital increase. This transfer will be made at BR$0.53 for every 1,000 shares of Cerj. As a result of this share sale, the shareholdings in Cerj will be as follows: Electricidade de Portugal 7.70%, Endesa Spain 10.71%, Enersis 35.13%, Chilectra 46.10% and others 0.36%. 5. As a result of the above subscription by Enersis of the capital increase in Cerj and the share transfer to Chilectra, the subsidiary Cerj has reduced its debt substantially, without causing any effects to the results of Enersis. Registration of International Bonds with the Securities and Exchange Commission, SEC. 1. 2. 3. In November 2003, Enersis, acting through its Agency in Cayman Islands (hereinafter Enersis), placed bonds, not registered with the SEC, with institutional investors on the American and European markets under Rules 144A and S for a total of US$350 million, as was informed at the time. These bonds were later listed on the Luxembourg Stock Exchange. In accordance with the respective Offering Memorandum dated November 19, 2003, Enersis has obtained, on August 6, 2004, the registration with the SEC of a new bond issue through the approval of the document called F-4/A. This registration will enable, within a sole period of at least 20 business 198 days, holders of the issue mentioned in 1. above to exchange these for the new bonds as described below. The new bonds will also be issued by Enersis, in the same way as described in 1. above, for a total amount of up to US$ 350 million repayable in full on January 15, 2014 and with an interest coupon of 7.375% p.a. The new bonds will have the same financial characteristics as the bonds issued November 2003, except that their registration with the SEC will give these securities greater potential liquidity to the benefit of their bond-holders. Once the exchange period is concluded, these will be issued by Enersis and listed on the Luxembourg Stock Exchange. Interim Dividends The board of Enersis, on January 28, 2004, agreed unanimously not to distribute an interim dividend in February 2004 against the results of 2003, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. The board of Enersis, on April 28, 2004, agreed unanimously not to distribute an interim dividend in May 2004 against the results to March 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 235 The board of Enersis, on July 28, 2004, agreed unanimously not to distribute an interim dividend in August 2004 against the results to June 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. The board of Enersis, on October 27, 2004, agreed unanimously not to distribute an interim dividend in November 2004 against the results to September 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. CH ILEC TR A S. A . 1. Dividend Policy for 2004 The dividend policy that the board of Chilectra S.A. expects to follow in 2004 is as follows: Distribute interim dividends in the months of May, August and November 2004 and in February 2005 against the net income for 2004. In each of those months, 85% of the income from the company’s normal operations for the quarters ended in March, June, September and December of that year, will be distributed. In this calculation, interim dividends already distributed with respect to 2004 will be deducted from 85% of the accumulated income in the quarter. Income from normal operations shall be understood to be the company’s profits obtained in 2004 but excluding the following: 1. 2. 3. 4. Accounting effects produced by the valuation of contributions made to subsidiary companies. Accounting effects of recognizing the premium on the placing of shares by subsidiaries. Income directly or indirectly arising from holdings in associate companies in Chile or abroad. Income generated by foreign or Chilean subsidiaries in which the company directly or indirectly holds less than 60% of their share capital, and income arising from asset disposals. 5. The amounts of goodwill and negative goodwill. Should the total contribution of these events be negative, it will be taken into account in calculating the income for distribution. Consequently, the board will not distribute interim dividends against the income deriving from these events and the ordinary shareholders’ meeting should pronounce in this respect when it approves the final dividend. The above represents the intentions of the board but compliance will depend on the earnings actually produced and also on the results of projections that the company periodically makes, or the existence of certain conditions. With respect to the final dividend policy, the board intends that the total dividends to be distributed against the year will be the same as the interim dividends already distributed or the minimum dividends as established in the Corporations Law, whichever is the greater. 2. Investment and Financing Policies for 2004 The board agreed to establish the following investment and financing policy for 2004: 2.1 Investments The company will make investments as authorized in its bylaws in areas related to supply capacity expansion works related to electricity demand, contributions to subsidiary or associate companies and in contributions for investment or formation of subsidiaries or associates whose business is allied, related or linked to energy in any of its forms, the supply of public utilities or which have energy as a principal input. Investments related to the company’s expansion will be those necessary for the optimum satisfaction of electricity demand in its concession zone. With respect to investments in public-utility related companies, these will be those necessary for them to comply with their corporate objects and carry out their concession functions. Regarding investments in subsidiary or associate companies, these will be made in projects that maximize the company’s value considering the degree of risk related to such investments and in accordance with the company’s bylaws. For the control of investments and as established in the company’s bylaws, the appointment of directors to represent the company will be proposed at shareholders’ meetings of the subsidiary and associate companies, such persons preferably being members of the board or executives of the company or its related companies. It will also establish in the subsidiaries investment, financing and commercial policies, and accounting systems and criteria, that they should follow, and supervise the performance of the subsidiaries and associates. 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 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 236 2.2 Financing DIVIDENDS The funds needed for the company’s Chilean and international expansion are obtained under special financing plans, in addition to those generated by its operating activities. Alternative sources of funds in these plans include, according to the needs, bond issues, suppliers’ credits, bank and syndicated loans, multinational agency loans, straight or convertible bonds, etc. Funds may also be obtained from Chilean and foreign investors and others. SHAREH O LD ERS’ MEE TI N G Ordinary Shareholders’ Meeting The ordinary shareholders’ meeting was held on March 25, 2004 and resolved on the following: 1. Approval of the annual report, balance sheet, financial statements and report of the external auditors for the year ended December 31, 2003. 1. 2. 3. 4. 5. The company’s board, on January 28, 2004, agreed to distribute on February 26, 2004, an interim dividend of Ch$33.92 per share against net income for 2003. The ordinary shareholders’ meeting held on March 25, 2004 agreed not to distribute a final dividend. The company’s board, on April 27, 2004, agreed to distribute on May 27, 2004, an interim dividend of Ch$11 per share against net income for 2004. The company’s board, on July 27, 2004, agreed to distribute on August 26, 2004, an interim dividend of Ch$10 per share against net income for 2004. The company’s board, on October 26, 2004, agreed to distribute on November 25, 2004, an interim dividend of Ch$40 per share against net income for 2004. 2. Approval and distribution of earnings and information of the dividend policy for 2004. PU RCHASE O F SHARES I N CER J 3. Setting of the directors’ remuneration. 4. Setting of the remuneration of the Directors’ Committee and its budget. The board on March 25, 2004 approved the purchase directly, or through its Agency or an investment vehicle, from Enersis, the latter acting directly or through its Cayman Island Agency, 760,255,861,477 shares in the Brazilian company Cerj, for BR$0.53 per one thousand shares. 5. Appointment of the external auditors. Extraordinary Shareholders’ Meeting An extraordinary shareholders’ meeting was held on March 25, 2004 which approved an amendment to clause 4 of the bylaws concerning the corporate objects, adding letter f) to that clause stating “f) directly or through other companies, buy, sell, import, export, prepare or produce, commercialize and distribute all kinds of merchandise relating to energy, the home, sports, recreation or computers.” O RGAN IZ ATI O NAL STRUC TU RE 1. The board, on January 28, 2004, approved the company’s new organizational structure. Among the most important features is the creation of a Technical Management under Alejandro Gómez Vidal. Alfredo Herrera Carrasco was also appointed Chief Commercial Officer and Christián Mosqueira Vargas as Chief Corporate Businesses Officer. The board accepted the resignations of Rolando Hechenleitner Kaschel as Chief Distribution Officer and Edgardo González Garlick as Chief Corporate Businesses Officer. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S The structure is as follows: CHIEF COMMUNICATIONS OFFICER Marcelo Castillo CHIEF REGIONAL DISTRIBUTION OFFICER Marcelo Silva CHIEF ECONOMIC AND CONTROL OFFICER Juan P. Spoerer CHIEF ECONOMIC AND CONTROL OFFICER Jorge Faúndez CHAIRMAN Jorge Rosenblut CHIEF EXECUTIVE OFFICER Rafael López CHIEF OPERATION S OFFICER Juan Camilo Olavarría 237 I R E G O N A L C O V E R A G E L O C A L C O V E R A G E CHIEF REGIONAL SERVICES OFFICER Cristóbal Sánchez LEGAL COUNSEL Gonzalo Vial CHIEF REGULATIONS OFFICER Guillermo Pérez CHIEF CONTRACTS OFFICER Víctor Orduña CHIEF HUMAN RESOURCES OFFICER Carmen Paz Urbina CHIEF TECHNICAL OFFICER Alejandro Gómez CHIEF CORPORATE BUSINESSES OFFICER Christian Mosqueira CHIEF COMMERCIAL OFFICER Alfredo Herrera 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 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 238 2. The board, on November 23, 2004, approved the company’s new organizational structure. Among the most important features was the appointment of Christián Herrera Fernández as Chief Innovation and Human Resources Officer (formerly Human Resources) and Enrique Fernández Pérez as Chief Networks Management Officer (formerly Technical). The board accepted the resignations of Alejandro Gómex Vidal as Chief Technical Officer, Carmen Paz Urbina Sateler as Chief Human Resources Officer and Jorge Faúndez Padilla as Chief Planning and Control Officer. The structure is as follows: CHAIRMAN Jorge Rosenblut CHIEF EXECUTIVE OFFICER Rafael López LEGAL COUNSEL Gonzalo Vial CHIEF REGIONAL DISTRIBUTION OFFICER Marcelo Silva CHIEF INNOVATION AND HUMAN RESOURCES OFFICER Cristián Herrera CHIEF OPERATIONS AND MARKET MANAGEMENT OFFICER Juan Camilo Olavarría CHIEF COMMUNICATIONS OFFICER Marcelo Castillo CHIEF REGIONAL SERVICES OFFICER Cristóbal Sánchez CHIEF ECONOMIC AND CONTROL OFFICER Juan P. Spoerer CHIEF REGULATIONS AND ENERGY MANAGEMENT OFFICER Guillermo Pérez CHIEF LARGE CUSTOMERS OFFICER CHIEF COMMERCIAL OFFICER CHIEF NETWORKS MANAGEMENT OFFICER Christian Mosqueira Alfredo Herrera Enrique Fernández A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 239 OTH ERS On January 28, 2004, the board agreed to call ordinary and extraordinary shareholders’ meetings for March 25, 2004. On March 9, 2004, the first notification of these meeting was published in the El Mercurio newspaper. The second and third notifications were made on March 15 and 18, 2004 respectively in the same newspaper. On March 9, 2004, notifications were sent to company shareholders indicating the holding of these meetings and their respective agendas. • On March 26, 2004, the ordinary shareholders’ meeting resolved on the following: 1. Approval of the annual report, financial statements, and reports of the external auditors and inspectors of accounts for the year ended December 31, 2003. 2. Distribution of dividends. 3. Explanation of the company’s dividend policy and information on the procedures for the dividend distribution. 4. Proposed investment and financing policies. The annual report for 2003 was sent on March 9, 2004 to the 5. Election of the board of directors. shareholders and stock exchanges. On March 9, 2004, the company’s financial statements were published in the Diario Financiero newspaper. 6. Setting of the directors’ remuneration. 7. Setting of the Directors’ Committee remuneration and its budget. EN D ESA S. A . ( PARENT COMPANY) 8. Report of the Directors’ Committee. • On February 4, 2004, Endesa, through its Agency, and CitibankN. A., acting through its International Banking Facility, Caja Madrid Miami Agency, Bank of Tokyo-Mitsubishi Ltd., Banco Bilbao Vizcaya Argentaria S.A. (BBVA) and Banco Santander Central Hispano, signed a syndicated loan agreement for US$250 million with repayment at 3.5 years and a Libor margin of 1.15%. This provided the company with a financial expense saving of US$5 million annually. 9. Appointment of the external auditors. 10. Election of two inspectors of accounts and their alternates and setting of their remuneration. In accordance with the indicatinos in point 5 of the meeting, a new board of directors was appointed for the company wich is comprised as follows: The proceeds wee fully used to refinance the balance of a syndicated loan signed in Mat 2003. The company at the same time obtained the release of the guarantees given by Empresa Eléctrica Pangue S.A., Empresa Eléctrica Pehuenche S.A. and Compañía Eléctrica Tarapacá S.A. covering the previous loan, and of borrowing and investments covenants. This refinancing was part of a new stage in which the company sought to optimize its financing costs and improve its debt maturity profile following the successful execution of its Financial Strengthening Plan in 2003. • On February 27, 2004, the board agreed, in accordance with the dividend policy for 2003, to propose to the company’s ordinary shareholders’ meeting to be held on March 26, 2004, the distribution of a final dividend of Ch$2.30 per share payable on April 5, 2004. Jaime Bauzá Ignacio Blanco Enrique García Antonio Pareja Luis Rivera Andrés Regué Carlos Torres Antonio Tuset Leonidas Vial At an extraordinary board meeting held on the same day, it was agreed to appoint Luis Rivera Novo as chairman and Antonio Pareja Molina as vice chairman. The same meeting also appointed the members of the Directors‘ Committee, these being Luis River Novo, Jaime Bauzá Bauzá and Antonio Tuset Jorrat. 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 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 240 PEH U EN CHE S. A . • On March 25, 2004, the ordinary shareholders’ meeting approved the financial statements for the year ended December 31, 2003. That meeting also approved the board’s proposal to pay a final dividend for 2003 for a total of Ch$28.85619 per share payable on April 14, 2004. • On June 24, 2004, the board agreed to distribute the first interim dividend for the year 2004 amounting to Ch$9.042979 per share payable on July 26, 2004, in accordance with the dividend policy approved by the ordinary shareholders’ meeting. • On October 8, Pehuenche reported that “during this week, certain members of the CDEC-SIC have proceeded to issue invoices to the company based on calculations made by the Operations Director of the CDEC-SIC, in circumstances in which the board of that organism, at its meeting EX - 9.2 – 2004 on October 4, 2004, adopted a majority agreement to request the Minister of the Economy to clarify doubtful points contained in Ministerial Resolutions 17 and 35 of April 14 and June 15, 2004 respectively. This, taking into account that there are manifest errors in the calculation made by the Operations Director, by applying Resolution No.1 of the Panel of Experts, which increased from 5 to 8 hours that period considered as carrying the greatest probability of system load loss, including incorrectly in this calculation Saturdays, Sundays and holidays which is clearly contrary to that stated in the resolution referred to. The calculations thus made with such manifest errors, and which we have objected to, would amount to the payment by the company, for the period 2000 – 2003, of Ch$21,702,042,530. In circunstances where the board of CDEC-SIC is awaiting the above clarification, some companies proceeded to send invoices, based on a manifestly mistaken calculation and which in addition to the inclusion of the days mentioned not considered in the Resolution No.1 of the Panel of Experts, contains manifest errors such as not applying the unanimous agreement of the board that defined the system’s peak period as five hours, at least until July 27, 2004, when the difference was produced that was resolved by the Panel of Experts. There are also errors such as the treatment of the water levels and initial energies of reservoirs, the maximum capacity of the Pehuenche plant and others that have been mentioned by other generators. The invoices have been rejected by the company based on current legislation. The board of CDEC-SIC should therefore pronounce on the calculations and, in the event of not reaching agreement on the matter at their meeting, this matter should be resolved by the Panel of Experts by pronouncing with respect to the differences arising. Considering the publicity given to this still unresolved matter in the press today, the company has considered it appropriate to advise its position on the matter because we are in no doubt about the mistakes made in these calculations which we consider as preliminary, and because we are confident that, by means of the clarification that the authority might make or by that determined by the Panel of Experts, pronouncing on the differences that will surely come to your attention, there could be a more certain scenario based on more realistic calculations coherent with the resolutions issued on the matter. The company will inform the market promptly of the development of this unconcluded matter”. • The company’s board, at an extraordinary meeting held on October 14, 2004, agreed to distribute to shareholders, in accordance with the dividend policy advised to the shareholders’ meeting, a second interim dividend amounting to Ch$18.444998 per share, payable as from October 28, 2004. • In December 30, Pehuenche S.A. informed the SVS the following: “The Board of Empresa Eléctrica Pehuenche S.A., at its meeting today, unanimously agreed to change the dividend policy advised to the company’s ordinary shareholders’ meeting held on March 25, 2004, with respect to the third interim dividend. According to the dividend policy, the payment of the third interim dividend considers the distribution of up to 70 % of net income during the period January-November 2004, according to the financial statements at November 30, 2004, less the amounts of the first and second interim dividends paid in January 2005. The decision adopted by the company’s board has given special importance to the fact that to date the result of the re-calculation that the Operations Director of the CDEC-SIC has to make is unknown, regarding the calculations of transfers of peak capacity between members of that organism, in the light of the recent resolutions issued on the matter by the Panel of Experts and the consequent impact in the results of Pehuenche S.A.. With prudence and responsibility the board of the company therefore has thought it appropriate to distribute 40 % of the net income for the period January-November 2004, according to the financial statements at November 30, 2004 less the amounts of the first and second interim dividends paid on January 25, 2005. This means the distribution of an interim dividend of Ch$1.885136 per share to shareholders registered in the company’s shareholders register five business days prior to the date planned for its payment. All the above is notwithstanding the final dividend on which the company’s ordinary shareholders’ meeting to be held in the first four months of 2005 will decide. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S M A N A G E M E N T ’ S A N A LY 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 F O R T H E Y E A R E N D E D D E C E M B E R 31, 2 0 0 4 241 It should be recalled that one of the good aspects of the electricity business is its positive elasticity to economic growth, a fact that has been confirmed in recent years in most of our concession areas, as the accompany table shows. ECO N OM IC-FI NAN CIAL SUM M ARY Net income for 2004 was Ch$44,308 million, comparing very favorably with a level of Ch$12,780 million in 2003. This result, 246.7% higher than the year before, is basically due to a 12.0% increase in sales which led to a 15% improvement in operating income, plus a 20.9% improvement in the non-operating result. Operating income was Ch$634,202 million, Ch$84,704 million more than the year before. If, apart from business reasons, we discount the effect of the Chilean peso revaluation during the year (6.1%), the increase in operating income would be 22.1%. It is important to note the better performance of the primary business. The 12.0% growth in sales confirms the sustained growth in demand for energy related to a climate of more certain economic recovery in most of the countries where the Enersis Group operates. 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 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 242 The principal considerations helping to explain the better result are the following: Generation Business In Argentina, this reached Ch$34,379 million and represented 9% of Endesa Chile’s total. The Argentine operation showed a 30% increase in sales as a result of the important growth in generation and in energy demand. Taking into account that our generation business is carried out mainly by our subsidiary Endesa Chile, the following figures relate to the consolidated results of that company. Income before taxes and minority interest rose by 24.7% over 2003, the result of improved operating and non-operating results. In Brazil, the subsidiary Cachoeira Dourada contributed 4% to Endesa Chile’s operating income. As already mentioned, this reflected the terms reached in concluding the company’s contractual dispute with CELG. The physical generation of this subsidiary increased by 8% due to stronger demand and favorable hydrology. • • • • • • The reasons for this improved performance include: The commercial start-up of the Ralco plant on Chile’s central grid system, contributing a maximum capacity of 690 MW. Adjustment of the node price from May, incorporating the increased cost of thermal generation due to the gas restrictions. Later, in the tariff-setting for the period November 2004-April 2005, the modification of the works plan was accepted which included alternative technologies to natural gas. The successful conclusion of commercial contractual disputes of the Brazilian subsidiary, Cachoerira Dourada with its principal customer, the Goiás state distribution company CELG. Tariff adjustments in Argentina begun in February with a first adjustment of the seasonal price for large users and commercial customers, and a second one on November, continuing in May and November respectively, with the transfer of the new natural gas price to variable generating costs recognized by the regulator. This increased the spot price. Operating income in Colombia contributed 32% of the overall income of Endesa Chile. Energy sales increased by 18% as a consequence of firmer demand and good hydrology. Operating income in Peru amounted to 14% of the company’s consolidated income, with sales increasing by 8%. Although physical sales were lower than in 2003 due to the poor hydrology in the zone, the increase in prices following the rise in international fuel prices compensated the fall in volume. Endesa Chile’s non-operating result improved by 10%. Lower financing expenses and larger gains from exchange differences and price-level restatements were offset by higher non-operating expenses as a result of the re-calculation of capacity payments in Chile. Taxes increased relating to a higher charge for income tax and a rise in deferred taxes. The higher charge for deferred taxes was recorded mainly in Argentina as a result of the significant devaluation made as part of the country’s emergency plan. Distribution Increase in energy generating prices in Peru for the period November 2004 –April 2005, showing a 19% increase in the monomic price in dollars compared to the price set in May 2004. This important line of business increased it operating income by 35%, from Ch$193,878 million to Ch$261,414 million, in line with the reactivation in energy demand experienced in most of our concession zones. Record daily production of Endesa Chile in Latin America of 204,115 MWh (November), 13% higher than the previous record daily level. Aggregate physical energy sales (in distribution) of the Enersis Group increased 5.5%, or 2,737 GWh, the equivalent of approximately 65% of the total annual sales of a subsidiary like Edelnor. Consolidated revenues for 2004 increased by 9.5% over 2003 to Ch$1,032,662 million. Physical energy sales grew by 5.5% and the average electricity sale price also rose. Operating income in Chile represented 41% of Endesa Chile’s consolidated operating income. Sales growth by subsidiary was as follows: • • Chilectra in Santiago, 7,6% growth following the “typical” correlation in positive periods when electricity demand is around two percentage points over GDP growth. Edesur, in Buenos Aires, 5.3% increase that reflects the recovery in activity in some sectors like commerce and residential. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Edelnor, Lima, saw an increase of 7.1% in physical sales, consistent also with the dynamism seen in the country’s growth rate, in particular in our concession zone. 31: The following table shows Enersis’s credit ratings at December 243 • • • Cerj (Ampla) in the state of Río de Janeiro, with a 4.8% growth in sales, while our other distribution subsidiary, Coelce, in Fortaleza, increased sales by 4%. Codensa, serving the city of Bogotá, was no exception and showed growth of 4.3% in physical sales. This growth is of major importance for our main business and its projections and expectations in the short and medium term. Remaining in the operating area, notable was the 4.2% increase in number of customers, from 10,442,299 to 10,885,721, thus signifying an increase of 443,422. This is an aspect of particular importance when demand is growing at current rates. Another important element in the operating field is labor productivity in distribution. This improved by a significant 6.4%, from 1,429 to 1,521 customers per employee. Energy losses (aggregated for the companies) are another key variable in the distribution business, slightly reducing from 12.2% to 11.9% mainly as a result of falls in Chilectra, Cerj (Ampla), and Codensa. Notable was the reduction in losses of our Brazilian subsidiary Cerj which declined from 23.2% to 22.8%, in line with our expectations with respect to the technical and commercial efforts made to improve this figure. This decline confirms the reducing trend noted last September. The Ch$290,474 million of increased sales were partially offset by an additional Ch$202,876 million in cost of sales. The important changes mentioned, with a net positive effect for the company, were explained by greater levels of operating and commercial activity. On the other hand, administrative and selling expenses increased by 1.7%. Non-Operating Result As at the end of the third quarter, Enersis produced an improved net financial result, this time of Ch$75,523 million, mainly due to the sharp reduction in the company’s average debt level. The company refinanced loans in 2004 to obtain a new interest margin one-tenth of that paid during 2003. As already mentioned, this has enabled Enersis to reach cost levels compatible with, or better even than, international electricity utility companies rated as A. INVESTMENT GRADE Maximum grade High grade Very strong Strong Average high grade Strong Medium grade Adequate NON-INVESTMENT GRADE Speculative elements Major uncertainty Undesirable Unable to meet commitments STANDARD & POOR’S FITCH MOODY’S AAA AA+ AA AA- A+ A A- BBB+ BBB AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- / Estable BBB- / Estable BB+ BB BB- B+ B B- BB+ BB BB- B+ B B- Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 / Positive Ba3 B1 B2 B3 The above refinancings permit Enersis now to have a debt maturity profile more in line with the group’s cash generating capacity, a situation much valued by the financial community. The following graph shows the comparative position of average consolidated financial debt of the Enersis Group at the close of the last three years. ����������������������������������������������� �������������� ������ ������ ������ ����� ������� Net income from investments in related companies also benefited from the recovery and improved by 73.5%, an increase of Ch$13,192 million, as detailed in the body of the management’s analysis. Other net non-operating income and expenses reflected a higher charge of Ch$16,891 million, as shown in the analysis that follows. 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 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 244 The combination of improved operating and non-operating results produced an extraordinary 219.1% growth in income before tax, equivalent to Ch$182,332 million. This large positive change was however offset by a large jump of Ch$94,631 million in income tax over that of 2003, which is explained in the following pages. Market Information Following the severe adjustments made throughout 2003 to improve Enersis’s financial situation and strengthen its equity position, 2004 was, as expected, one of consolidation. One of the best examples of the recovery in financial ratios was the change in Enersis’s EBITDA. The following table shows its strong growth, a factor normally followed by the market in analyzing the company. ������������������������������� The perception of risk also improved considerably, a factor duly recognized by the international credit-rating agencies. cost of bank borrowing and in the risk premium demanded on the company’s bonds. The improved ratings do no more than ratify the opinion of a stock and financial market that pushed the share price upward while risk margins continued to reduce considerably, both in the The table below shows the recovery in the share price during 2004, supported also by strong liquidity, as is now habitual with Enersis’s shares and ADRs. ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ��� ���� ���� ���� ���� ���� ���� ���� ���� ��� ����������� ��� A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 245 This greater liquidity also explains why our securities show the greatest sensitivity to investor decisions in the face of economic or market conditions. For example, it is reasonable to estimate that when investors perceive positive events leading them to increase their regional or local exposure, they will demand positions in securities with the greatest liquidity. At December 31, the share price ended at Ch$93.66, signifying a rise of 8.91% of the end of 2003. The ADR price reached US$8.51, an increase of 15.63%. The better perception of the company’s risk was appreciated clearly in the lower financial cost for Enersis at the time of renegotiating its debt. For example, in November, debt which the year before had carried a cost of Libor + 350 basis points was refinanced at Libor + 37.5 basis points. This shows a margin approximately one tenth lower than the previous one. The following table shows that the risk perceived by bond holders has also improved, showing the confidence of debt holders in Enersis’s capacity to pay on time and in form its contracted financial commitments. THE COMPANY’S M ARKE T ������������������ ������������������ ������������������ ��� A closer analysis of changes in the principal businesses is given in the following pages, in the Comparative Analysis of the Financial Statements, of the different items of the statement of income, balance sheet and principal cash flows, compared to information at December 31, 2003. The business activities of Enersis are carried out through subsidiary companies that operate in different businesses in the countries in which it has a presence. The most relevant businesses of Enersis are electricity generation and distribution. The following table shows comparisons of key indicators in the different countries: Distribution Business Company Chilectra Edesur Edelnor Cerj Coelce Codensa Total Energy Sales (GWh) (*) Energy Losses (%) Customers (thousands) Customers per Employee dec-03 10,518 12,656 3,968 7,276 5,905 9,254 dec-04 11,317 13,322 4,250 7,628 6,141 9,656 dec-03 5.6% 11.8% 8.4% 23.6% 13.5% 10.2% dec-04 5.2% 11.8% 8.4% 22.8% 13.9% 9.7% dec-03 1,341 2,117 892 2,012 2,109 1,972 dec-04 1,371 2,139 912 2,115 2,334 2,015 49,577 52,314 12.2% 11.9% 10,443 10,886 dec-03 1,800 938 1,610 1,326 1,534 2,298 1,429 dec-04 1,981 939 1,680 1,502 1,746 2,236 1,521 * Includes sales to end customers, tolls and intercompany sales. Generation Business Energy Sales(GWh) Market share in sales Country Chile Argentina Perú Colombia Brazil Market SIC y SING SIN SICN SIN SICN Total dec-03 18,681 9,259 4,443 14,481 3,770 dec-04 18,462 11,604 4,328 15,148 3,902 50,633 53,443 dec-03 43.9% 11.9% 25.3% 22.2% 1.0% dec-04 40.3% 14.0% 23.3% 23.3% 1.2% 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 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 246 I. ANALYSIS O F THE FI NANCIAL STATEMENTS 1. Analysis of the Statement of Income At December 31, 2004, the company had a net income of Ch$44,308 million, representing an increase of Ch$31,528 million, equivalent to 247% compared to 2003 when the figure was Ch$12,780 million. The increase is mainly due to higher operating income and lower financial expenses, partially offset by the increase in taxes. The following table provides a comparison of each item in the statement of income. Statement of Income (millions of Ch$) Sales Cost of sales Operating margin Admin. & selling expenses Operating income Income (loss) on investments in related companies Non-operating income & expenses, net Financial margin, net Amortization goodwill Price-level restatements Exchange differences Non-operating result Income before taxes Income tax Extraordinary items Minority interest Amortization negative goodwill Net income for the year EBITDA (*) Earnings per share dec-03 2,418,451 (1,695,212) 723,239 (173,741) 549,498 17,955 (56,832) (362,027) (54,559) (4,612) (6,206) (466,281) 83,217 (42,610) Dec-04 Change Dec 04-03 % change Dec 04-03 2,708,925 (1,898,088) 810,837 (176,635) 634,202 31,145 (73,723) (286,504) (53,201) (777) 14,407 (368,653) 265,549 (137,241) 290,474 (202,876) 87,598 (2,894) 84,704 13,190 (16,891) 75,523 1,358 3,835 20,613 97,628 182,332 (94,631) 12.0% (12.0%) 12.1% (1.7%) 15.4% 73.5% (29.7%) 20.9% 2.5% 83.2% 332.2% 20.9% 219.1% (222.1%) - - - - (80,283) 52,456 12,780 1,040,675 0.39 (101,107) 17,107 44,308 1,138,905 1.36 (20,824) (35,349) 31,528 98,230 0.97 (25.9%) (67.4%) 246.7% 9.4% 246.7% (*) Income before taxes, interest, depreciation, amortization & extraordinary items. a) Operating income: Operating income in 2004 showed a rise of Ch$84,704 million over 2003, to Ch$634,202 million, representing an increase of 15.4%. This is mainly the result of strong increases in operating income in the generating subsidiaries in Colombia, Brazil and Argentina and the distribution subsidiaries in Colombia and Argentina. Taking away the effect of the revaluation of the Chilean peso against the US dollar of 6.1% during the year (from Ch$593.80 to Ch$557.40 per US$1), the operating income increased by 22.1%. In Generation, the operating income of our subsidiary Endesa Chile for 2004 was Ch$369,025 million, a 6.4% increase of Ch$22,052 million compared to the year before. This improved operating income is due to the better results of the subsidiaries in Colombia, Brazil and Argentina which were partly offset by weaker results in Chile and Peru. Sales in 2004 reached 53,443 GWh, an increase of 5.5% over 2003. In Colombia, the subsidiaries Emgesa and Betania showed increases in their operating income of Ch$18,333 and Ch$11,990 million respectively to levels of Ch$100,903 million and Ch$17,553 million. This is the result of firmer demand in the local market and good hydrology during the year, which translated into an increase in energy sales in Colombia of 17.6%. Physical sales increased by 667 GWh and generation by 1,087 GWh, with a lower contribution by thermal generation. This allowed a reduction in energy purchases and in fuel costs compared to the previous year. Eliminating the effect of the variation in the Chilean peso exchange rate, the increase in operating income of Emgesa and Betania would be Ch$24,572 and Ch$13,171 million. In Brazil, the subsidiary Cahoeira Dourada produced an operating income of Ch$14,314 million, 281.8% (Ch$10,565 million) more than in 2003. This demonstrates the progress made in the agreements signed in 2004 with its principal customer CELG. Sales increased by 33.1% to Ch$42,006 million and the physical generation A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 247 increased by 7.9% as a result of increased demand and the favorable hydrology in the zone. Eliminating the effect of the variation in the Chilean peso exchange rate, the increase in operating income would be Ch$10,881 million. In Argentina, operating income in 2004 was Ch$34,379 million, an increase of 3.8% (Ch$1,258 million) over 2003 when the figure was Ch$33,121 million. Sales increased by an impressive 30% to Ch$148,300 million due to the large increase in generation and energy demand. The higher physical sales of the subsidiary Central Costanera, which grew by 74% over 2003, influenced by the ability of the Costanera plant to operate not only with natural gas but with fuel oil, were partially offset by reduced sales by El Chocón due to the low hydrology in the Comahue zone. Thermal generation’s participation in Costanera’s output grew from 50.3% to 70.4%, causing the cost of sales in Argentina to increase by 41.0% to Ch$111,352 million in 2004. The cost of fuel rose by 237.6% because of the natural gas restrictions in the Argentine market which led Costanera to increase its generation with liquid fuels. Eliminating the effect of the variation in the Chilean peso exchange rate, the increase in operating income of Costanera and El Chocón would be Ch$3,129 and Ch$768 million respectively. In Chile, operating income in 2004 was Ch$149,718 million, a decline of Ch$9,423 million with respect to 2003. This is the result of a higher variable cost of sales that had to be assumed resulting from the greater use of thermal generation in the first half of the year due to relatively poor hydrology in the zone. This situation improved in the second half of the year thus increasing hydroelectric generation, principally with the entry to the SIC of the Ralco hydroelectric plant. In Peru, the operating income of the subsidiary Edegel was Ch$52,158 million, compared to Ch$62,829 million in 2003, a reduction of 17.0%. Sales increased by 7.7% (Ch$8,843 million) to Ch$123,375 million. Physical sales were lower than in 2003 because of the low hydrology in the zone. This also led to a price increase, affected as well by the increase in international fuel prices, which helped to compensate the reduced physical sales. However, the lower hydrology also affected the company’s cost of sales which increased by 44.6% over 2003, to Ch$63,779 million. Edegel’s physical generation of electricity fell by 3.9% to 4,285.2 GWh., with hydroelectric production falling by 408.4 GWh and thermal increasing by 235.2 GWh. This implied higher fuel costs and larger energy purchases. Eliminating the effect of the variation in the Chilean peso exchange rate, the reduction in operating income would be 8.5% (Ch$5,381 million). In Distribution, the Group subsidiaries continued to produce increases in physical sales and number of customers; the former showed an increase of 2,737 GWh, the equivalent of 5.5%, to 52,314 GWh, and the number of customers increased by 4.2% (443,000) to 10.9 million. In Colombia, the subsidiary Codensa produced an increase in its operating income of Ch$53,066 million to a total of Ch$84,449 million in 2004. This increase was mainly due to a better unit margin following a tariff increase and greater energy demand; this translated into an increase in physical energy sales of 4.3% to 9,656 GWh. Eliminating the effect of the variation in the Chilean peso exchange rate, the increase in operating income would be Ch$55,709 million. In Chile, the subsidiary Chilectra reported an increase in operating income for 2004 of Ch$2,236 million to Ch$97.611 million. This was mainly due to increased sales of Ch$38,203 million as a result of the 7.6% increase in physical sales equivalent to 799 GWh. This was partially offset by an increased cost of sales of Ch$28,858 million following greater purchases of energy and a greater depreciation of fixed assets, as well as an increase in administrative and selling expenses of Ch$7,109 million, mainly due to the extraordinary severance payments made early in the year and higher operating and maintenance costs. In Peru, the subsidiary Edelnor increased its operating income by Ch$628 million to Ch$27,825 million. This increase was mainly due to lower administrative and selling expenses and greater physical sales, partially offset by a smaller sales margin caused by purchases at a higher price. Physical energy sales increased by 282 GWh, from 3,968 GWh in 2003 to 4,250 GWh. Eliminating the effect of the variation in the Chilean peso exchange rate, the increase in operating income of Edelnor would have increased by Ch$2,918 million. In Brazil, the distribution subsidiaries Cerj and Coelce produced operating income of Ch$46,893 and Ch$4,890 million respectively. Cerj showed an increase of Ch$21,767 million and Coelce a reduction of Ch$15,286 million. In the case of Cerj, the increase was the result of a greater sales margin following a tariff adjustment, higher physical energy sales which increased by 352 GWh and a reduction in energy losses from 23.6% at December 2003 to 22.8% in 2004. In Coelce, the reduction was due to higher energy purchase costs, an increase in energy losses from 13.5% to 13.9%, partially offset by the tariff increase and a 236 GWh increase in physical sales. Eliminating the effect of the variation in the Chilean peso exchange rate, the operating income of Cerj would have increased by Ch$23,882 million and of Coelce decreased by Ch$13,587 million. In Argentina, our subsidiary Edesur improved its operating result by Ch$5,125 million, passing from a loss of Ch$5,378 million in 2003 to one of Ch$253 million in 2004. This is mainly the result 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 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 248 of the country’s demand for energy which has led to a 5.3% increase in physical sales, from 12,656 GWh to 13,322 GWh. Eliminating the effect of the variation in the Chilean peso exchange rate, the operating income increases by Ch$4,673 million. Sales, cost of sales and administrative and selling expenses of the Enersis Group subsidiaries for the years 2004 and 2003 are as follows: Operating Results detail (millions of Chilean pesos) December 2003 December 2004 Company Endesa S. A. Chilectra S. A. Edesur S. A. Edelnor S. A. Cerj Coelce Codensa S. A. Cam Ltda. Inmob. Manso de Velasco Ltda. Synapsis Soluc.y Servicios Ltda. Enersis parent & invest. Companies Sales Cost of Sales Admin. & Selling Expenses Operating Result Sales Cost of Sales 943,288 (564,208) (32,107) 346,973 1,032,662 (629,191) 444,803 (314,129) 188,541 (165,195) 180,346 (135,623) 325,533 (289,209) 212,572 (162,022) 299,459 (250,770) 94,011 11,617 46,415 4,440 (73,624) (10,764) (31,089) (35,299) (28,724) (17,526) (11,198) (30,374) (17,306) (6,305) (1,733) (6,369) 95,375 (5,378) 27,197 25,126 20,176 31,383 14,082 (880) 8,957 483,006 (342,987) 208,983 (181,425) 182,363 (137,720) 354,638 (293,145) 264,358 (229,674) 365,513 (273,375) 100,424 (84,077) 10,354 45,447 4,448 (8,432) (33,363) Admin. & Selling Expenses (34,446) (42,408) (27,811) (16,818) (14,600) (29,794) (7,689) (7,113) (2,008) (6,084) Operating Result 369,025 97,611 (253) 27,825 46,893 4,890 84,449 9,234 (86) 6,000 (14,187) (1,158) (17,443) (14,161) (1,102) (17,533) Consolidation adjustments (332,574) 302,579 30,643 648 (343,271) 316,403 29,669 2,801 Total Group 2,418,451 (1,695,212) (173,741) 549,498 2,708,925 (1,898,088) (176,635) 634,202 Operating Result by Business Area Sales and cost of sales, by business area, for the years 2004 and 2003: Operating Result by Business Area Years ended December 31, 2004 and 2003 Generation Distribution Engineering & Real Estate Head Office & other services Eliminations Total Business Sales Cost of sales Operating margin dic-03 dic-04 dic-03 dic-04 dic-03 dic-04 dic-03 dic-04 dic-03 dic-04 dic-03 dic-04 918,634 1,012,305 1,651,253 1,858,860 36,272 30,711 144,867 150,320 (332,575) (343,271) 2,418,451 2,708,925 (543,006) (611,808) (1,316,948) (1,458,325) (31,966) (25,816) (105,871) (118,542) 302,579 316,403 (1,695,212) (1,898,088) 375,628 400,497 334,305 400,535 4,306 4,895 38,996 31,778 (29,996) (26,868) 723,239 810,837 Admin. & selling expenses (31,018) (33,003) (140,427) (139,121) (2,822) (3,449) (30,118) (30,731) 30,644 29,669 (173,741) (176,635) Operating result 344,610 367,494 193,878 261,414 1,484 1,446 8,878 1,047 648 2,801 549,498 634,202 b) Non-Operating Result The company’s non-operating result improved by 20.9% (Ch$97,628 million), passing from a loss of Ch$466,281 million in 2003 to one of Ch$368,653 million. This was mainly due to lower financial expenses, the effects of exchange differences and income on investments in related companies. Financial expenses less financial income reduced by Ch$75,523 million, passing from a net expense of Ch$362,027 million in 2003 to one of Ch$286,504 million in 2004, a reduction of 20.9%. The decline in financial expenses is mainly the result of a lower level of average debt and lower interest rates obtained through the refinancing agreements. Income on investments in related companies increased by 73.5% (Ch$13,190 million), passing from income of Ch$17,955 million in 2003 to income of Ch$31,145 million. This is mainly due to the income recorded in 2004 by the associate company Central Generadora de Fortaleza (CGTF) of Ch$11,857 million which entered into operations in early 2004 and the improved result in Inversiones Gas Atacama Holding Ltda. of Ch$6,486 million, partially offset by reduced income from Cía. de Interconexión Energética (CIEN) of Ch$4,975 million. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 249 Amortization of goodwill shows no significant change, being a reduction of 2.5% to Ch$53,201 million. The reduced amortization was produced by the effect of the Chilean exchange rate on foreign subsidiaries controlled in dollars and which have goodwill. Income tax and deferred taxes. There was a higher charge at December 31, 2004 of Ch$94,631 million compared to 2003, passing from a tax charge of Ch$42,610 million to one of Ch$137,241 million. Other non-operating income and expenses (net) show a greater expense of Ch$16,891 million, passing from a net expense of Ch$56,832 million in 2003 to one of Ch$73,723 million. The main reasons for this change are the following: INCOME TAX AND DEFERRED TAXES Concept Dec 03 Ch$ millions Dec 04 Ch$ millions Change Ch$ millions Income tax Deferred taxes (103,272) 60,662 (90,712) (46,529) 12,560 (107,191) Lower gains on sales of investments of Ch$84,677 million. Total (42,610) (137,241) (94,631) • • • • • • • • • Higher net expenses due to the re-calculation of capacity on the SIC for Ch$12,549 million. Higher charge for tax on equity in Colombia (of 1.2% and applicable to all companies in that country) amounted to Ch$4,488 million. Net losses on derivate instrument contracts of Ch$5,240 million. Lower dividends from associate companies of Ch$2,434 million. The above was partially offset by: Lower losses of Ch$12,252 million from the conversion adjustment to Chilean regulations, in accordance with Technical Bulletin No.64, principally of the subsidiaries in Brazil. This was mainly produced by the appreciation of the Brazilian real against the US dollar during 2003 and its impact on the monetary assets and liabilities structure. Lower charge for provisions for lawsuits and contingencies of Ch$56,225 million. Lower pension fund charges in Brazil of Ch$16,182 million. Indemnity received by Edesur from Alstom-Pirelli with respect to the Azopardo substation, for Ch$7,657 million. Price-level restatements and exchange differences show a net positive change in 2004 of Ch$24,448 million compared to the year before, passing from a loss of Ch$10,818 million to a gain of Ch$13,630 million. This arose mainly from the effects of having an asset position in the first half year when the dollar was at its peak for the year, passing to a liability position when the dollar fell, reaching a Chilean peso revaluation against the dollar at December 31, 2004 of 6.1%. The year before, the peso revaluation was 17.4% which negatively affected the position we held during that year. The reduction of Ch$12,560 million in income tax is mainly explained by the fact that 2003 included the tax on the gain on the sales of investments in Río Maipo, Canutillar and Infraestructura 2000 of Ch$23,120 million. This was partially offset by the tax charge for this year due to the better taxable profits, mainly in the subsidiaries Codensa and Emgesa for Ch$6,452 and Ch$8,749 million respectively and the subsidiaries Edelnor and Cerj for Ch$3,400 and Ch$3,247 million respectively. With respect to deferred taxes, which do not represent cash flow, these show a negative change of Ch$107,191 million, mainly due the generating subsidiaries in Argentina (Costanera and El Chocón) for Ch$47,961 million. This occurred as they recorded for the first time in June 2003 the effects of the companies’ tax losses (mainly the devaluation of the Argentine peso) at that date (Ch$24,332 million of gain from deferred taxes), the gain from deferred taxes increasing in the second half by Ch$9,601 million to reach Ch$33,933 million of gain at December 31, 2003. However, as a result of the recovery in the exchange rate and the companies’ improved results, the tax loss has diminished and produced losses of Ch$14,028 million from the reversal of deferred taxes. Other companies producing large increases in the charge for deferred taxes were Cerj for Ch$27,783 million, Enersis for Ch$12,889 million, Edelnor for Ch$5,150 million, Endesa Chile for Ch$8,362 million and Edegel for Ch$5,352 million. Amortization of negative goodwill. This amounted to Ch$17,107 million in 2004, a fall of Ch$35,349 million compared to 2003. This was due to the acceleration of the amortization in 2003 that was generated by the investment made in Cerj early that year. Exchange and Interest Rate Risk Analysis The company has a high proportion of its loans denominated in US dollars as most of its sales in the different markets where it operates have a high degree of indexation to that currency. However, the Brazilian and Colombian markets are less related to the dollar so the subsidiaries in those markets have more debt in local currency. In the case of Argentina, an important proportion of sales comes from 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 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 250 the export of energy to Brazil which is indexed to the dollar which reduces the exchange risk exposure in that country. Despite this natural cover for the exchange rate, the company, in a scenario of high dollar volatility, has continued with its policy of partially hedging its dollar liabilities in order to attenuate the fluctuations caused to the results by changes in the exchange rate. In view of the important reduction in the accounting mismatch in recent years, which have reached prudent levels, the company has amended its dollar-peso hedging policy and established a cash-flow hedging policy together with a maximum accounting mismatch limit over which hedging transactions should be carried out. At December 31, 2004, the company in consolidated terms has cover in Chile, through dollar-UF swaps, an amount of US$700 million, compared to US$219 million in forward cover contracts (for the sale of US$) at the end of 2003. The change is mainly due to the amendment to the hedging policy mentioned above. With respect to interest rate risk, the company has, in consolidated terms, a rate of fixed to floating rate debt of approximately 83.7% / 16.3%. The fixed-rate percentage has declined compared to the 99% / 1% ratio the year before. The following shows the operating results by country for the years 2004 and 2003: Chile Argentina Brazil Peru Colombia Total Country Sales % consolidated total Cost of sales % consolidated total Operating margin % consolidated total Admin. & selling expenses % consolidated total dec-03 883.093 37% (560.210) 33% dec-04 872.542 32% (543.231) 29% 322.883 329.311 41% (70.665) 40% 45% (62.055) 36% dec-03 299.651 12% (236.978) 14% 62.673 9% (30.750) 18% dec-04 363.389 13% (294.638) 16% 68.751 8% (29.412) 17% dec-03 564.369 23% (475.978) 28% dec-04 660.679 24% (551.584) 29% 88.391 109.095 13% (43.175) 24% 12% (39.611) 23% dec-03 255.971 11% (146.068) 9% dec-04 279.721 10% (178.432) 9% 109.903 101.289 12% (21.387) 12% 15% (20.910) 12% dec-03 415.367 17% (275.978) 16% dec-04 532.594 20% (330.203) 17% 139.389 202.391 25% (11.996) 7% 19% (20.415) 12% dec-03 dec-04 2.418.451 2.708.925 (1.695.212) (1.898.088) 723.239 810.837 (173.741) (176.635) Operating result 260.828 258.646 31.923 39.339 48.780 65.920 88.993 79.902 118.974 190.395 549.498 634.202 Others As is normal practice with bank loans and also in the capital markets, a substantial portion of the financial debt of Enersis is subject to cross-default clauses. Certain defaults by Endesa-Chile or its subsidiaries, if not remedied within a certain time period (where the specific clauses allow a period for remedying problems), could result in a cross default at the level of Endesa-Chile and Enersis. equivalent jointly of US$30 million or more, and enforceable court resolutions whose content is different from the payment of a money obligation against Enersis, Endesa-Chile or any of their respective subsidiaries that could have a substantially adverse effect on Enersis consolidated or Endesa-Chile consolidated, as the case may be. The detail of defaults of Enersis or its subsidiaries which, if not remedied in time, could result in a cross default at the level of Enersis and/or its subsidiaries are: • • • • Non-payment of principal or interest on the corresponding debt. Non-payment of debt of Enersis S.A., Endesa-Chile or by any of their respective subsidiaries for an amount of more than US$30 million (considered on an unconsolidated basis) when due (whether the maturity date or by debt acceleration). Bankruptcy or cessation of payments by Enersis, Endesa-Chile or any of their respective subsidiaries. Court resolutions enforced against Enersis, Endesa-Chile or any of their respective subsidiaries that imply an obligation for the • • Government action whereby all or a substantial part of the ownership or assets of Enersis, Endesa-Chile or certain subsidiaries are nationalized, embargoed, expropriated or government actions are taken that could prevent the continuity of the operations or a substantial part of them, of Enersis, Endesa-Chile or certain subsidiaries. Non-compliance with contract clauses that are not remedied within the set grace periods such as the commitment to maintain certain debt and interest coverage ratios. In most of the loans, and in general terms, the term subsidiary refers to those of a relevant nature in Chile or abroad. The liabilities that could be payable on demand in each default and the respective creditor subsidiary is detailed as follows: A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 251 Bank Loans International Yankee bonds Amounts in US$ millions at December 31, 2004 Amounts in US$ at December 31, 2004 Enersis Endesa Chile Total Sindicated 350 250 600 Total 350 250 600 Enersis Endesa Chile Total Yankee bond 901 2,016 2,917 Potentially Active Events of Default in Subsidiaries that would generate a cross-default to the parent company. Potentially Active Events of Default in Subsidiaries (triggering cross-default to the parent company). Enersis Effect on the Parent 1. Default Debt >=US$30 MM 2. Bankruptcy or cessation of payments 3. Substantial Adverse Effect Defaults 4. Governmental Action Endesa Effect on the Parent 1. Default Debt >=US$30 MM 2. Bankruptcy or cessation of payments 3. Substantial Adverse Effect Defaults 3. Governmental Action US$350 million Parent only affected by annotated causes if occurring in the Relevant Subsidiaries. Defaults in other subsidiaries have no effect on the Parent. The Relevant Subsidiaries are qualified on the basis of financial statements for the last year under US GAAP. On the basis of the financial statements at December 31, 2003, the Relevant Subsidiaries are Enersis, Endesa Chile, Cerj, Chilectra and Cono Sur. US$250 million Parent only affected by annotated causes if occurring in the Relevant Subsidiaries. Defaults in other subsidiaries have no effect on the Parent. The Relevant Subsidiaries are qualified on the basis of financial statements for the last year under US GAAP. On the basis of the financial s tatement s at December 31, 2003, the Relevant Subsidiaries are C.E Cono Sur, Endesa Chile Internacional, Betania, Pehuenche, Pangue, C.E. Tarapacá, Edegel, Cachoeira Douradad and Lajas Inversora. Notes: 1) Unconsolidated Debt 2) Nationalization, expropriation, dissolution, etc.. Enersis 1. Default Debt >=US$30 MM Default on debt of Enersis or a Subsidiary. The Subsidiaries of Enersis that at the date indicated have third-par ty debts of over US$30 million are: Cerj, Endesa, B e ta n i a, C e n t r a l C o s ta n e r a, Codensa, Colece, Edegel, Edelnor, Emgesa, Endes Chile Internacional, Pehuenche and San Isidro. In Enersis or one of its Significant S u b s i d i a r i e s , B a s e d o n t h e financial statements at 31.12.2003, Significant Subsidiaries are Enersis, Cerj, Chilectra, Endesa Chile and Luz de Bogotá. 2 . S t a r t o f b a n k r u p t c y proceedings Endesa 1. Default Debt >=US$30 MM 2 . S t a r t o f b a n k r u p t c y proceedings Notes: (1) Only at the unconsolidated level. Default on debt of Endesa or a Subsidiary. The Subsidiaries of Endesa that at the date indicated have third-party debts of over US$30 million are: Betania, Central Costanera, Edegel, Emgesa, Endes Chile Internacional, Pehuenche and San Isidro. In Endesa or one of its Significant S u b s i d i a r i e s , B a s e d o n t h e financial statements at 31.12.2003, Significant Subsidiaries are Central Costanera, Cono Sur, Edegel, Emgesa, Endesa Colombia, Pangue and San Isidro. C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 252 Domestic Bonds Amounts in US$ millions at December 31, 2004 Enersis Endesa Chile Total Domestic bonds 61 514 575 The Enersis bonds have cross-default with its own debt that exceeds 3% of assets. Potentially Active Events of Default in Subsidiaries (triggering cross default with the Parent) Endesa Chile 1. Insolvency or inability to pay debts 2. Default Debt >= UF 2 million 3. Start of bankruptcy proceedings (amounts affected US$ millions in brackets) 2. Balance Sheet Analysis Important subsidiaries Subsidiaries Cono Sur Yes (Ch$482) No Yes (Ch$482) Rest of subsidiaries Yes (Ch$32) No No The company’s total assets reduced by Ch$475,368 million compared to the end of the previous year, mainly because: Assets Assets (millions of Ch$) Current assets Fixed assets Other assets Total assets dec-03 1,156,481 8,298,769 1,527,643 dec-04 1,519,081 7,684,822 1,303,622 362,600 (613,947) (224,021) 10,982,893 10,507,525 (475,368) 31.4% (7.4%) (14.7%) (4.3%) Change 04-03 % Change 04-03 The reduction in fixed assets (property, plant and equipment) of Ch$613,947 million (7.4%) was mainly due to depreciation for the year of Ch$379,491 million and the effect of the exchange rate on the fixed assets of foreign companies as a result of the methodology of carrying non-monetary assets in historic dollars, in accordance with Technical Bulletin No.64, affecting subsidiaries domiciled in unstable countries. This was partially compensated by new acquisitions of Ch$265,934 million. Current assets increased by Ch$362,600 million, mainly due to: • Increase in cash and banks of Ch$29,465 million and time deposits of Ch$188,083 million mainly because of greater placements by Codensa of Ch$152,564 million to cover a future capital reduction, and in Endesa Chile and Betania of Ch$33,258 and Ch$16,327 million respectively in cash surpluses offset by reduced placements by Emgesa and Chocon of Ch$13,541 and Ch$10,343 million respectively held for the payment of dividends. • • • Higher short-term accounts receivable from related companies, of $96,899 million, basically because of the maturity during the year of the loan to Atacama Finance of Ch$104,134 million, partially compensated by lower receivables from Gas Atacama of Ch$2,681 million, Cemsa of Ch$1,874 million and Cien of Ch$1,049 million. Increase in accounts receivable of Ch$49,890 million, mainly higher invoicing of the subsidiaries Codensa Ch$17,647 million, Chilectra $6,395 million, investluz $6,173 million Emgesa Ch$5,291 million, Cerj Ch$4,167 million and Edelnor Ch$4,055 million, partially offset by Cachoeira Dourada where receivables fell by Ch$7,379 million. Increase in recoverable taxes of Ch$34,819 million, mainly by Elesur for Ch$56,363 million and Codensa for Ch$15,596 million, partially offset by reductions in Enersis of Ch$14,844 million, Cerj of Ch$11,895, Endesa of Ch$9,682 million and Coelce of Ch$2,904 million. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 253 • • • Increase in prepaid expenses of Ch$28,147 million, mainly in Cerj and Investluz of Ch$21,704 and Ch$3,215 million respectively, for the regulatory assets and Parcel A. Reduction in other current assets of Ch$39,660 million, mainly the result of a decline in forward contracts and agreements for Ch$21,901 million, smaller deposits in guarantee of Ch$8,953 million and less deferred credits of Ch$4,163 million. Reduction in other accounts receivable of Ch$32,735 million, mainly the result of the payment of OHL of Ch$38,730 million for Infraestructura 2000 and less advances to suppliers in Codensa of Ch$4,023 million, partially offset by the re- calculation of capacity on the SIC of Ch$17,572 million. Other long-term assets showed a reduction of Ch$224,020 million, mainly due to: • • • • Fewer accounts receivable from related companies of Ch$131,875 million, basically because of the transfer to current assets of the loan to Atacama Finance of ch$131,875 million and part payment of that loan. Reduction in goodwill of Ch$66,372 million mainly due to amortization in 2004 of Ch$53,201 million. The difference is the result of the Chilean exchange rate with respect to goodwill in subsidiaries controlled in dollars. Reduction in investments in other companies of Ch$86,804 million, basically the investment in Empresa Electrica de Bogota following the liquidation of Luz de Bogota, transferring its holding to minority interests. Reduction on other long-term assets of Ch$59,843 million following a reduction in deferred loan commissions and expenses of Ch$46,527 million, less the effects of the marking to fair value of derivatives of Ch$23,070 million and a reduction in post-retirement benefits of Ch$5,184 million, all partially offset by an increase in bond expenses and discounts of Ch$11,161 million. The company’s total liabilities show a reduction of Ch$475,368 million compared to the end of the previous year, for the following reasons Liabilities Liabilities (millions of Ch$) Current liabilities Long-term liabilities Minority interest Shareholders’ equity dec-03 1,155,330 3,782,448 3,433,014 2,612,101 dec-04 1,018,811 3,804,155 3,125,006 2,559,553 Change 04-03 % Change 04-03 (136,519) 21,707 (308,008) (52,548) (11.8%) 0.6% (9.0%) (2.0%) Total liabilities & shareholders’ equity 10,982,893 10,507,525 (475,368) (4.3%) Short-term liabilities reduced by 11.8% (Ch$136,519 million) • due to: • • • Reduction in short-term, and current portion of long-term, borrowings from banks of Ch$128,037 and Ch$62,896 million respectively resulting from the prepayments made by Edesur of Ch$63,284 million and by Codensa of Ch$82,340 million. Reduction in other current liabilities of Ch$16,609 million, mainly the result of a decline in derivative contracts and their fair value of Ch$29,680 million. Increase in short-term bonds payable of Ch$34,365 million following the transfer to short term of Edegel bonds for Ch$22,733 million and of Cerj for Ch$16,522 million. Increase in accounts payable of Ch$32,172 million, mainly Endesa for Ch$21,023 million and Edesur for $11,956 million. Long-term liabilities increased by Ch$21,707 million (0.6%) basically due to an increase in bonds payable of Ch$136,723 million, issued to prepay bank debt. • • Increase in other long-term liabilities of Ch$57,348 million, mainly the result in Enersis of recording the fair value of derivative instruments taken. Increase in long-term deferred taxes of Ch$56,340 million, mainly Endesa and Edelnor for Ch$39,396 and Ch$14,805 respectively. 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 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 254 • Reduction in bank borrowings by Ch$228,630 million following the prepayments made from surplus cash and bond issues. The minority interest fell by Ch$308,008 million due to the increased holdings in Cerj and Costanera and the liquidation of Luz de Bogotá, plus the effect of the reduction in capital of foreign subsidiaries controlled in dollars, in accordance with Technical Bulletin No.64. With respect to shareholders’ equity, this fell by Ch$52,548 million compared to December 2003, explained mainly by the reduction in other reserves of Ch$96,275 million caused by the revaluation of the Chilean peso and its effect on equity through the adjustment for conversion differences of investments controlled in dollars. This was partially offset by the increase in retained earnings of Ch$13,961 million and the improved net income for the year of Ch$31,528 million. The principal financial indicators are as follows: Comparison of the Principal Financial Indicators Liquidity Indicator Current ratio Acid test (1) Working capital Debt Debt ratio Short-term debt Long-term debt Financial expense coverage (2) times Profitability Return on equity Return on assets (1) Current assets less inventories and prepaid expenses (2) EBITDA divided by financial expenses. % % Unit times times dec-03 dec-04 Change Dec 04-03 % Change 04-03 1.00 0.95 1.49 1.40 0.49 0.45 49.0% 47.4% Ch$ millions 1,151 500,270 499,119 43,363.9% times % % 0.82 0.23 0.77 2.41 0.49% 0.12% 0.85 0.21 0.79 3.16 1.73% 0.42% 0.03 (0.02) 0.02 0.75 1.24% 0.30% 3.7% (8.7%) 2.6% 31.1% 253.1% 250.0% The current ratio at December 2004 was 1.49:1, showing a 49.0% improvement over the year before and reflecting the company’s improved financial situation following the capital increase and debt refinancing operations carried out in recent two years. The debt ratio was 0.85:1 at December 2004, a slight 3.7% decline compared to 2003, basically because of the effect of the Chilean exchange rate. The return on equity reached 1.73%, compared to 0.49% at the end of 2003. This improvement was due to the improved result for the year. The return on assets moved from 0.12% at December 2003 to 0.42% at December 2004, basically due to the improved result and the reduction in total assets. 3. Principal Cash Flows The company generated a net cash flow in 2004 of Ch$234,976 million, composed as follows: Principal Cash Flows Cash flow (millions of Ch$) Operating Financing Investment dec-03 588,839 (446,651) 90,584 dec-04 618,005 (189,124) (193,905) Net cash flow for the year 232,772 234,976 2,204 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S Change 04-03 % Change 04-03 29,166 257,527 (284,489) 5.0% (57.7%) (314.1%) 0.9% 255 The operating activities generated a net positive cash flow of Ch$618,005 million which is higher than the Ch$29,166 million generated the year before. The operating flow in 2004 comprised the following: • Credits not representing cash flows of Ch$78,124 million of which Ch$15,464 million relate to the positive conversion of foreign subsidiaries. • Gain on sales of assets of ch$6,841 million. Net income for the year was Ch$44,308 million, plus: Charges to income not representing cash flows of Ch$589,794 million, corresponding mainly to depreciation for the year of Ch$379,491 million, write-offs and provisions of Ch$38,380 million, amortization of goodwill of Ch$53,201 million and other charges not representing flows of Ch$111,142 million which included the effect of the negative conversion of foreign subsidiaries of Ch$30,810 million. Change in net liabilities of Ch$107,571 million, affecting cash flows. The above was partially compensated by: The increase in net assets affecting operating cash flows of Ch$38,701 million. • • • Financing activities produced a net negative cash flow of Ch$189,124 million, mainly due to loan repayments of Ch$1,191,305 million, dividend payments of Ch$97,013 million, bond repayments of Ch$22,110 million and distribution of capital of subsidiaries of Ch$21,172 million. This was partially offset by loans drawn of Ch$827,706 million, bonds placed of Ch$328,720 million and other sources of finance of Ch$22,781 million. Investment activities generated a net negative cash flow of Ch$193,905 million, mainly reflecting the acquisition of fixed assets of Ch$265,934 million, particularly Endesa’s investment in its Ralco plant, of Ch$65,258 million in 2004, and other disbursements of Ch$1,592 million, partially offset by other investment income of Ch$40,574 million, the collection of loans to related companies of Ch$15,295 million and the sale of permanent investments of Ch$2,557 million. 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. Holding Enersis Acquisitions of Fixed Assets Depreciation dec-03 134,419 25,601 dec-04 96,136 32,716 dec-03 183,976 13,077 dec-04 170,790 14,696 - - - - 25,652 19,311 23,661 19,636 16,240 541 - 195 - 31,293 11,370 46,243 27,581 15,654 2,006 20 2,821 94 53,719 16,098 46,189 38,098 51,674 1,181 234 968 1,112 47,884 16,037 42,489 35,667 48,496 1,121 289 962 1,060 Consolidated total 265,256 265,934 406,325 379,491 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 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 256 II. BO O K VALU E AN D ECO N OM IC VALU E O F THE ASSE TS The following should be mentioned with respect to the more important assets: The values of the fixed assets are adjusted according to the accounting principles set by the Superintendency of Securities and insurance (SVS) in its Circulars 550 and 566 of 1985. In the case of the foreign company Inversiones Distrilima S.A., the fixed assets were adjusted according to the exception criteria contained in Technical Bulletin No.45 of the Chilean Institute of Accountants, which was in force at the time the investment was made and was not modified by Technical Bulletin No.51 that replaced it. Depreciation is calculated on the restated value of the assets depending on the remaining useful lives of each asset. Investments in related companies at shown at their equity- method value. In the case of foreign companies, the application of this method has been made on the financial statements prepared in accordance with the terms of Technical Bulletins Nos.72 and 64 of the Chilean Institute of Accountants and the intangible values are restated and amortized in accordance with Technical Bulletin No.55 of the Chilean Institute of Accountants. In accordance with SVS Circular 150 of January 31, 2003, the company evaluated, at the close of the financial statements for 2002, the recoverability of assets related to its investments, applying accounting principles generally accepted in Chile (Technical Bulletin No.33 for fixed assets and NIC 36 for the hierarchy defined in Technical Bulletin No.56 for the increased or decreased values related to such investments). Assets expressed in foreign currencies are shown at the exchange rate current on the closing date. Investments in financial instruments under resale agreements are shown at their cost plus the proportion of the corresponding interest according to the rate implied in each transaction. Accounts and notes receivable from related companies are classified according to their short or long-term maturities. The operations meet conditions of equity similar to those normally prevailing in the market. In summary, the assets are shown in accordance with generally accepted accounting principles and standards, and the respective instructions issued by the SVS, as mentioned in Note 2 to the financial statements. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 257 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 25 8 25 9 26 0 26 2 26 3 26 5 26 6 29 0 29 1 R EP O RT FRO M T H E I N S PEC TO RS O F ACCO U N T R EP O RT O F I N D EPEN D EN T ACCO U N TA N TS U N CO N S O L I DAT ED BA L A N CE S H EE TS U N CO N S O L I DAT ED I N CO M E STAT E M EN T STAT E M EN TS O F U N CO N S O L I DAT ED C A S H FLOWS STAT E M EN TS O F CH A N G ES I N S H A R EH O L D ERS’ EQ U I T Y N OT ES TO T H E U N CO N S O L I DAT ED FI N A N CI A L S TAT E M EN TS U N CO N S O L I DAT ED M AT ER I A L I N F O R M AT I O N M A N AG E M EN T’S A N A LYS I S O F T H E U N CO N S O L I DAT ED FI N A N CI A L STAT E M EN TS 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 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 258 R E P O R T F R O M T H E I N S P E C T O R S O F A C C O U N T 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 26, 2004, we have proceeded to examine the Financial Statements of Enersis S.A. for the period between January 1 and December 31 of the year 2004. 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 registers 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 statements, We have no observations on this review. José Santiago Edwards José Santiago Edwards José Santiago Edwards Inspector of Accounts Luis Bone Luis Bone Luis Bone Inspector of Accounts Santiago, January 28, 2005 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S 259 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 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 260 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) 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 Sub - total Less: accumulated depreciation As of December 31, 2003 ThCh$ 2004 ThCh$ 341,241 1,181,114 755 82,267 9,176,155 737 1,774,192 2,227,626 128,562,558 26,874,285 14,843,891 55,432 28,516,072 17,303,424 - - 42,802,273 18,136,958 192,578,679 99,300,301 21,318,189 2,359,443 818,188 34,005 21,318,134 2,196,587 1,158,196 33,988 24,529,825 24,706,905 (11,919,198) (12,530,600) Total property, plant and equipment, net 12,610,627 12,176,305 OTHER ASSETS: Investments in related companies Investment 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 2,226,881,670 2,250,223,210 - 15,508,173 753,106,535 706,355,890 (621,934) 487,265 (635,425) - 451,554,968 434,047,535 1,473,876 (434,208) 27,395,174 1,473,876 (508,041) 12,327,667 3,459,843,346 3,418,792,885 3,665,032,652 3,530,269,491 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 261 As of December 31, 2003 ThCh$ 2004 ThCh$ 809,498 4,173,363 114,402 177,329 247,085 34,809,445 22,183,350 136,704 16,691,677 139,111 8,680,005 31,837 9,062,455 53,507 187,258 94,604 76,122,916 18,012,095 193,498 - 31,379 544,059 88,161,969 104,333,608 304,322,500 195,090,000 643,421,975 592,028,750 2,565,412 4,818,080 9,641,028 2,565,071 3,520,749 73,178,171 964,768,995 866,382,741 2,283,404,124 2,283,404,124 163,306,446 162,725,821 (26,313,477) (122,588,994) 180,417,144 194,378,259 12,779,560 (1,492,109) 44,307,596 (2,673,664) 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 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 for the year Deficit of subsidiaries in development stage Total shareholders´ equity 2,612,101,688 2,559,553,142 TOTAL LIABILITIES AND SHAREHOLDERS´ EQUITY 3,665,032,652 3,530,269,491 The accompanying notes are an integral part of these financial statements 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 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 262 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) OPERATING INCOME: SALES COST OF SALES GROSS PROFIT ADMINISTRATIVE AND SELLING EXPENSES OPERATING LOSS NON-OPERATING INCOME SELLING EXPENSES: 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 Years ended December 31, 2003 ThCh$ 2004 ThCh$ 4,440,316 (1,158,548) 4,432,912 (1,101,472) 3,281,768 3,331,440 (17,443,744) (17,314,877) (14,161,976) (13,983,437) 40,618,484 30,514,861 116,577,629 157,530,500 102,226,101 (73,440,467) (51,110,145) (146,131,051) (23,686,725) (4,536,852) 31,296,475 9,995,020 (20,852,813) (51,264,529) (71,623,008) (15,960,008) (2,131,915) 5,096,826 (8,186,551) 41,304,934 INCOME (LOSS) BEFORE INCOME TAXES AND AMORTIZATION OF NEGATIVE GOODWILL (22,348,527) 27,321,497 INCOME TAX 12,951,801 16,945,821 INCOME (LOSS) BEFORE AMORTIZATION OF NEGATIVE GOODWILL (9,396,726) 44,267,318 AMORTIZATION OF NEGATIVE GOODWILL NET INCOME FOR THE YEAR The accompanying notes are an integral part of theese financial statements 22,176,286 40,278 12,779,560 44,307,596 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 a n d t h o u s a n d s o f U S d o l l a r s ) 263 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the year GAIN (LOSSES) FROM SALES OF ASSETS: Gain on sales of investments Changes (credits) to income wihch 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 charges to income which do not represent cash flows Changes in assets which affect cash flows: Decrease in dividends receipts Decrease (increase) in trade receivables Decrease in other assets Changes in liabilities which affect cash flows: Increase (decrease) in accounts payable associated with operating results Increase in interest payable Decrease in income tax payable Increase 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 2004 ThCh$ ThCh$ 12,779,560 44,307,596 (90,022,773) - 1,112,068 73,833 (116,577,629) 73,440,467 51,110,145 (22,176,286) 4,536,852 (31,296,475) (299,592) 54,513,673 1,054,993 73,833 (157,530,500) 20,852,813 51,264,529 (40,278) 2,131,915 (5,096,826) (865,132) 28,994,053 - (454,853) 18,226,354 66,476,784 436,741 (8,937,104) (5,914,032) (28,093,955) (12,951,801) 1,545,313 4,832 (4,216,879) 5,813,329 (18,124,485) (19,309,679) 38,021 Net cash flows used in operating activities (90,444,299) 7,323,724 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 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 264 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 Years ended December 31, 2003 2004 ThCh$ ThCh$ 560,126,472 376,687,632 224,868,923 - 18,153,248 (72,526) (1,081,078,487) (87,566,290) (4,579,223) (61,941,413) (11,102,445) (61,812,117) - 75,263,089 - 84,767,891 12,644,430 (59,093) (166,967,236) (134,639) (85,248,568) (11,441,165) - (2,712,427) Net cash used in financing activities (128,316,226) (93,887,718) CHASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of long-term investments Proceeds from loans granted to related companies Proceeds from other loans granted to related companies Long-term investments Additions to property, plant and equipment Loans granted to related companies Other receipts from investments 165,464,042 54,398,161 - - - (5,932,860) 1,676,345 - 108,694,177 98,221,201 (343,959) (94,031) (99,393,687) 2,122,134 Net cash provided by investing activities 215,605,688 109,205,835 NET CASH FLOW FOR THE YEAR (3,154,837) 22,641,841 EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS (518,808) (313,563) NET INCREASE IN CASH AND CASH EQUIVALENTS (3,673,645) 22,328,278 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 5,195,998 1,522,353 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 1,522,353 23,850,631 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 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 ( E x p r e s s e d i n t h o u s a n d s o f h i s t o r i c a l C h i l e a n p e s o s , e x c e p t a s s t a t e d ) 265 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 Paid-in capital ThCh$ 751,208,197 1,471,844,920 - - - - 4,658,223 - Additional paid-in capital ThCh$ 33,370,057 125,881,577 - - - - 71,728 - Retained earnings ThCh$ Other reserves ThCh$ 46,879,587 402,807,650 - - - (228,581,520) - - - 1,790,596 - (11,432,599) - (61,587,469) 468,796 - Deficit of subsidiaries in development stage ThCh$ (4,937,110) - 4,833,433 - (1,302,667) - (49,372) - Net income (loss) for the year ThCh$ Total ThCh$ (223,748,087) 1,005,580,294 - 1,597,726,497 - (11,432,599) (1,302,667) (61,587,469) 6,939,971 12,467,863 223,748,087 - - - - 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 As of December 31, 2003 (1) 2,283,404,124 163,306,446 (26,313,477) 180,417,144 (1,492,109) 12,779,560 2,612,101,688 As of January 1, 2003 Capital increase Transfer of prior year income to retained earnings Changes in equity of affiliates Cumulative translation adjustment Reserve Technical Bulletin No. 72 Price-level restatement of capital Net income for the year 2,227,711,340 - - - 159,323,362 (563,714) - - - 55,692,784 - 3,966,173 - (25,671,685) 176,016,726 - 13,629,822 - - - 4,731,711 - - - (4,435,524) (103,832,123) 11,992,130 (641,792) - (1,455,716) - (1,161,959) - - - (55,989) - 12,467,863 2,548,391,890 (563,714) - (4,435,524) (103,832,123) 11,992,130 63,692,887 44,307,596 - (12,467,863) - - - - 44,307,596 As of December 31, 2004 2,283,404,124 162,725,821 (122,588,994) 194,378,259 (2,673,664) 44,307,596 2,559,553,142 (1) Restated in thousands of constant Chilean pesos as of December 31, 2004. The accompanying notes are an integral part of these consolidated financial statements 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 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 266 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 ( R e s t a t e d f o r g e n e r a l p r i c e - l e v e l c h a n g e s a n d e x p r e s s e d i n t h o u s a n d s o f c o n s t a n t C h i l e a n p e s o s a s o f D e c e m b e r 31, 2 0 0 4 , e x c e p t a s s t a t e d ) N OTE 1. D ESCRIP TI O N O F BUSI N ESS d) Price-level restatement Ener sis S. A . (the “Company ” ) is regis tered 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. 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, 2004 and 2003. The effects of these off-the-books restatements are shown in Note 20. e) Currency conversion N OTE 2. SUM M ARY O F SI G N IFIC ANT ACCO U NTI N G P O LICIES a) Periods covered 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: These financial statements cover the years ended December 31, 2003 and 2004. b) Basis of preparation The financial statements have been prepared in accordance with generally accepted accounting principles in Chile and the regulations established by the SVS (collectively “Chilean GAAP”), except for the investment in subsidiaries, which is shown in one line of the balance sheet under the equity method and, therefore, have not been consolidated line by line. This treatment does not affect the net income of the year or shareholders’ equity. These financial statements have been prepared order an individual analysis of the Company and they should be read along with the consolidated financial statements required by accounting principles accepted in Chile. These financial statements include assets, liabilities and result of the agency established in 1996 by Enersis S.A. in Cayman Islands. c) Basis of presentation The 2003 financial statements and its corresponding notes are presented updated and restated by 2.5% to facilitate comparison. This percentage corresponds to the Consumer Price Index variation within the last twelve months, with a one-month lag. Currency United States dollar (Observed) Euro Unidad de Fomento (UF) Symbol used US$ UF 2003 Ch$ 593.80 744.95 16,920.00 2004 Ch$ 557.40 760.13 17,317.05 Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of Chilean pesos into US dollars are included solely for the convenience of the reader, using the observed exchange rate reported by the Chilean Central Bank as of December 31, 2004 of Ch$557.40 to US$1.00. The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange. f) Time deposits Time deposits are presented at original placement plus accrued interest and indexation adjustments at each year end. g) Property, plant and equipment Property, plant and equipment are stated at cost plus price- level restatement. In 1986, the increase resulting from a technical appraisal of property, plant and equipment was recorded in the manner authorized by the SVS in Circulars No.’s 550 and 566 dated October 15 and December 16, 1985, respectively, and Communication N°4790, dated December 11, 1985. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 267 At December 31, 2003 and 2004, 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. the Chilean Association of Accountants, it has resorted to IAS 36 “Impairment of Assets Value”. 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$1,112,068 and ThCh$1,054,993 in 2003 and 2004, respectively. i) Intangibles Intangibles are mainly easements, and amor tized in accordance with Technical Bulletin N°55 of the Chilean Association of Accountants. j) Investments in related companies Investments in related companies are presented under the equity method of accounting, on the basis of the corresponding financial statements of the invested. Investments in foreign affiliates are recorded in accordance with Technical Bulletins No. 64 and 72 (which partially revoked Techinal Bulletin No. 42) of the Chilean Association of Accountants. The Company has evaluated at December 31, 2003 and 2004, the recoverability of the book value of its investments abroad 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. k) Investments in other corporations Investments in other corporations are valued at monetary adjusted adquisition cost. l) Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular N° 1697 (which revoked Technical Bulletin No. 42) 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. The Company has evaluated at December 31, 2003 and 2004, the recoverability of its goodwill and negative goodwill arising on investments abroad, and in virtue of Technical Bulletin N°56 of m) 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. n) Income tax and deferred income taxes At December 31, 2003 and 2004, 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. o) 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 6.5% (9.5% in 2003) and assuming an average employment span which varies based upon years of service with the Company. p) Revenue recognition The Company recognizes revenues for amounts received from substations rental and electrical distribution lines in accordance with contracts with Chilectra S.A. These amounts are presented in current assets as amounts due from related companies and the corresponding cost is included in cost of sales as depreciation of the aforementioned equipment and electrical installations. q) 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 6.5% (9.5% in 2003). r) Accrued vacation expense 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 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 268 In accordance with Technical Bulletin No.47 issued by the Chilean Association of Accountants, employee vacation expense is recorded on the accrual basis. For classification purposes, cash flows from operations include collections and payments to related companies for services and dividends paid. s) Financial derivative contracts w) Cost of share issue As of December 31, 2003 and 2004 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. 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 23. t) Software x) Reclassification Software has acquired by the Company and its subsidiaries as Do not reclassification was made at December 31, 2003. computing packages and is amortized over a 3-year term. u) Research and development costs During 2003 and 2004 there have been no expenses under this caption which require footnote disclosure as required by Circular No. 981 of SVS dated December 28, 1990. v) 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. N OTE 3. CHAN GE I N ACCO U NTI N G PRI NCIPLES As from January 1, 2004, the Superintendence of Securities and Insurance, through Circular Letter 1697, has made demandable the adoption of Technical Bulletin 72 on Business Combinations, issued by the Accountants Association of Chile. These regulations have been applied by the Company regarding permanent investment and interest unification. Regarding indemnity for years of service, the Company modified the deduction rate from 9.5% in 2003 to 6.5% in 2004 and its workers future permanence, which are the parameters used to assess the said liabilities. These changes resulted in the acknowledgement of a larger net charge of ThCh$204,389 to income during the current fiscal year. In addition, in the provision for after-retirement benefits, the deduction rate was also modified from 9.5% in 2003 to 6.5% in 2004, which resulted in a higher charge of ThCh$107,881 to the margin. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 269 N OTE 4. TR ANSAC TI O NS WITH REL ATED COMPAN IES Balances of accounts receivable and payable are as follows at December 31, 2003 and 2004: a) Notes and accounts receivable: Company Chilectra S.A. Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. Enersis Internacional Chilectra S.A. ( Agencia en Islas Cayman ) Construcciones y Proyecto Los Maitenes S.A. Edelnor S.A. Companhia de Eletricidade do Río de Janeiro Luz de Bogotá S.A. Edesur S.A. Luz de Rio Ltda. Codensa S.A. Empresa Eléctrica de Colina Ltda. Endesa S.A. (Chile) Elesur S.A. Inversiones Distrilima S.A. Ingendesa S.A. Chilectra Internacional Túnel el Melón S.A. Smartcom S.A. Compañía Eléctrica Tarapacá S.A. (Celta) Endesa S.A. (España) Chispa Uno S.A. Empresa Eléctrica Pehuenche S.A. Aguas Santiago Poniente S.A. As of December 31 , Short-term Long-term 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 70,777,485 12,143,747 95,557,104 88,017,114 53,297 35,043 398,422 6,496,794 9,527 - 58,546 18,248 21,127 54,251 14,584 12,449 312 7,840 56,662 339,736 6,321,005 10,813 1,006 53,617 16,711 - 49,684 13,356 11,401 - 49,921,481 1,390,304 21,969 500 1,668 21,094 487 1,029 - 5,751,963 83,042 350 29,442 522,285 286 700 80,393 936 28,704 543,797 - - 30,750 30,000 - - - - - - 1,936,321 - 319,399,909 308,861,143 - - - - - - - - - - 36,597,955 35,232,957 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total 128,562,558 26,874,285 451,554,968 434,047,535 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 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 270 b) Notes and accounts payable: Company Chilectra S.A. Synapsis, Soluciones y Servicios IT Ltda. Inmobiliaria Manso de Velasco Ltda. Cía. Americana de Multiservicios Ltda. Enersis Internacional Endesa S.A. (Chile) Edelnor S.A. Edesur S.A. Elesur S.A. Smartcom S.A. Túnel el Melón S.A. Endesa Internacional S.A. Ingendesa S.A. Chilectra Internacional Chilectra S.A. ( Agencia en Islas Cayman ) Endesa Inversiones Generales S.A. As of December 31 , Short-term Long-term 2003 ThCh$ 690,211 5,279,471 18,564,647 8,667,028 1,360,622 76,026 14,284 13,596 - 19,882 63 2004 ThCh$ 1,457,449 1,828,343 8,938,838 7,273,980 1,251,201 79,969 13,082 12,451 8,140 - - - 55,209,694 385 42 31,129 92,059 - 38 28,508 21,223 2003 ThCh$ 2004 ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Income (expense) 2003 ThCh$ 10,417,852 4,440,316 4,792,078 (591,720) (388,735) (179,948) 197,670 (13,038) (351,421) (384,097) (611,578) 3,247,883 (9,499,614) 1,783,139 740,075 (952,435) 23,595,922 1,844,337 513,972 - 380,507 - 2004 ThCh$ 4,460,581 4,432,912 4,735,989 (646,667) (368,316) (443,669) 215,229 (18,324) (494,128) (194,368) (474,047) 1,968,506 - 2,062,053 739,618 (990,824) 21,136,955 1,716,375 400,218 (25,830) (64,184) 56,936 38,981,165 38,205,015 Total 34,809,445 76,122,916 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. Empresa Distribuidora Sur S.A. 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 Endesa Agencia Chilectra Internacional Total Nature of Transaction Loans Property rental Services Loans Property rental Loans Services Materials Property maintenance Loans Services Services Loans Loans Services Property rental Loans Loans Loans Loans Loans Loans A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 271 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. d) Conditions of the long-term receivables and payables are as follows: Company Chilectra S.A. Chilectra S.A. Compañía Americana Multiservicios Ltda. Type Account receivable Account receivable Account receivable Due Date 2007 2007 2007 Currency UF UF UF Capital 3,789,246.41 1,293,438.79 111,837.45 Interest Rate 3.40% 3.33% 3.33% Chilectra S.A.( Agencia en Islas Cayman ) Account receivable Luz de Rio Ltda. Account receivable 2007 2007 US$ US$ 554,110,411.63 7.01% 46,919,950.58 6.98% N OTE 5. D EFERRED I NCOME TA XES a) Income taxes payable as of each year-end are as b) The Company has tax losses of ThCh$206,607,440 follows: Credits for absorbed profits PPM, donations, training expense As of December 31, 2004 ThCh$ 2003 ThCh$ 14,695,371 148,520 Total income taxes recoverable 14,843,891 Tax for sale of investments Income tax prior year 16,691,677 - Total income tax payable 16,691,677 and ThCh$288,397,778 for the years ended December 31, 2003 and 2004, respectively. - - - - - - c) The balance of taxed retained earnings and related tax credits are as follows: Year 2004 As of December 31, 2004 Loss ThCh$ 239,949,691 Credit ThCh$ - 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, 2003 and 2004 as follows: As of December 31, 2003 As of December 31, 2004 Asset Short-term Long-term Liability Asset Short-term Long-term Short-term Long-term Short-term Long-term Liability ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ Unearned income Vacation accrual Depretiation Severance indemnities Other events Provisions Bond discount Deferred charges Tax losses Complementary account, net 23,649 73,349 - - 87,200 385,644 - - 29,261,998 - - - - - 96,367 - - - - - - - 60,268 - - 5,864 - - 1,779,119 41,711 - 1,249 112,726 1,208,080 1,138,429 2,040,858 - (1,519) (156,570) 5,334 108,096 - - 101,455 456,851 - - - 42,778,937 - - - - - 130,446 - - - - - - - - - 135 - - 60,580 1,704,538 133,412 - 676 135,394 1,218,030 734,799 452,291 - - (140,260) - Total 29,831,840 96,367 1,315,768 4,914,447 43,450,673 130,446 648,400 3,651,195 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 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 272 e) Income tax expense for the years ended December 31, 2003 and 2004 is as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ Income tax provision Adjustment for tax expense - prior year (16,691,678) - - 784,289 Effect on deferred tax assets or liabilities for the year 397,570 1,944,862 Benefits for tax losses Amortization of complementary accounts 29,261,998 14,230,645 (16,089) (13,975) Total 12,951,801 16,945,821 N OTE 6. OTHER CU RRENT ASSE TS Other current assets as of each year-end are as follows: Forward contracts Deferred costs-loans (1) Post-retirement benefits Deferred expense Collar contracts Bond discount Fair value - derivative contracts Unrealized loss derivative contracts Reverse repurchase agreements (2) Other As of December 31, 2003 2004 ThCh$ ThCh$ 8,631,079 2,016,936 35,541 4,762,902 683,192 152,882 829,775 - 1,416,151 796 1,200,976 926,826 - - - 14,592,209 - 191,117 Total 17,303,424 18,136,958 (1) See Note 10. (2) The detail of reverse repurchase agreements is a follows: Code Date start Date end Financial Institution Currency Document CRV CRV CRV CRV CRV CRV CRV CRV CRV UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. 29/12/04 03/01/05 BBVA C. BOLSA BHIF S.A. UF 29/12/04 03/01/05 VALORES SECURITY S.A. C.B. UF D.P.R. D.P.F. CERO D.P.F. D.P.F. D.P.F. D.P.F. D.P.F. BONO Interest rate % 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.33% 0.37% Current amount ThCh$ 1,718,058 202,820 55,201 1,744,948 801,652 2,634,291 5,030,869 1,725,148 683,696 Nominal ThCh$ 1,717,190 202,710 55,189 1,743,989 801,289 2,633,052 5,027,775 1,724,822 683,315 Fair value ThCh$ 1,717,533 202,755 55,192 1,744,373 801,429 2,633,534 5,029,012 1,724,914 683,467 Total 14,596,683 14,589,331 14,592,209 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 7. PRO PERT Y, PL ANT AN D EQ U IPMENT The composition of property, plant and equipment as of each year-end is as follows: 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 273 As of December 31, 2003 ThCh$ 21,318,189 2,359,443 818,188 34,005 2004 ThCh$ 21,318,134 2,196,587 1,158,196 33,988 24,529,825 24,706,905 (9,663,675) (879,780) (240,303) (9,961,922) (1,042,108) (446,994) Total accumulated depretiation at beginning of year (10,783,758) (11,451,024) Accumulated depreciation at beginning of year-technical appraisal of buildings and infraestructure (23,372) (24,583) Depreciation of the year Depreciación del ejercicio (gasto administración y ventas) (1,084,715) (27,353) (1,027,639) (27,354) Total depreciacion acumulada con cargo a Resultado (1,112,068) (1,054,993) Total accumulated depreciation at end of year (11,919,198) (12,530,600) Total property, plant and equipment, net 12,610,627 12,176,305 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 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 274 N OTE 8. I NVESTMENT I N REL ATED COMPAN IES a) Investments as of each year-end are as follows: Related Companies Empresa Nacional de Electricidad S.A. Chilectra S.A. Enersis Internacional Luz de Bogotá S.A. (2) Empresa Distribuidora Sur S.A. Investluz S.A. Distrilec Inversora S.A. Inmobiliaria Manso de Velasco Ltda. Inversiones Distrilima S.A. Elesur S.A. Number of shares 4,919,488,794 59.98% 359,602,435 98.24% 15,529,421,297,372 25.71% 143,996,758 16.02% 15,681,945,734 15.61% 101,684,374 20.43% 29,462,253 100.00% 95,363,337 15.93% Companhia de Eletricidade do Río de Janeiro 766,367,324,642 26.47% Central Geradora Termelétrica Fortaleza S.A. (*) 20,246,908 48.82% Compañía Americana de Multiservicios Ltda. Synapsis, Soluciones y Servicios IT Ltda. 33,821,693 10,569,721 Endesa Market Place (3) Synapsis Colombia S.A. Luz de Río Ltda. Constructora El Gobernador Ltda. (1) Codensa S.A. Total - 1 - - 16,466,029 99.99% 99.99% 0.00% 0.10% - - - (1) Company merged with Inmobiliaria Manso de Velasco Ltda. (2) Company dissolved during 2004. (3) Company with negative equity. b) According to the provisions of Technical Bulletin 64 of the Chilean Institute of Accountants, in 2003 the Company matched the exchange difference produced in liabilities contracted in the same investment control currency, thereby being specifically designated and booked as hedge instruments. During the second quarter of this year, the Company has contracted instruments (Swap) re-denominating such debt in inflation index-linked units of account. Hence, the debt and the investment are no longer matched. c) Capital increase in Cerj On December 11, 2003, the Compañía de Electricidade do Rio de Janeiro S.A. shareholders extraordinary assembly was held, which approved a capital stock increase of an approximate value of MUS$ 250,000. The capital stock increase for the Compañía de Electricidade do Rio de Janeiro S.A. was concretized on February 27, 2004, for MR$ 710,000 (around MUS$ 243,000), at an equivalent of R$ 0.53 per one thousand share lot (1,000 shares.) A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 360,557,685 100.00% 100.00% 303,106,179 289,428,742 (37,606,620) (8,248,250) (37,606,620) (8,248,250) 303,106,177 289,428,740 Percentage owned 2003 % 2004 % 59.98% 98.24% Shareholders´equity of investee Net income of investees 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 1,529,985,763 1,568,897,981 80,084,181 83,788,756 437,157,882 457,376,117 52,756,293 77,321,577 25.71% 18.10% 16.02% 15.61% 20.43% 100.00% 15.93% 499,679,635 - 4,311,603 11,161,566 457,564,052 523,890,321 (101,242,812) (30,959,195) 590,358,953 523,523,727 (27,778,921) (17,129,823) 293,938,943 262,696,531 (8,899,063) (6,494,157) 332,721,775 295,053,314 (15,646,658) (9,654,877) 42,887,996 45,894,034 1,339,422 3,005,990 135,303,911 106,797,363 9,078,950 523,706 48.82% 99.99% 99.99% 0.00% 0.10% - - (1,270,758) 24,287,590 34,295,929 55,289,063 35,969,128 42,992,062 7,027,401 5,574,542 10,476,755 12,547,446 5,793,408 4,228,085 - - - - 833,461 1,933,022 686,771 1,169,734 49,207,344 - 100.00% - 56,688,518 Equity in income Share of equity Unrealized income Investment book value 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 48,035,238 50,257,276 917,699,712 941,039,623 51,827,701 75,960,597 429,463,227 449,325,589 1,108,698 2,870,117 128,489,050 - (26,795,880) (4,451,526) (1,389,130) (3,197,311) 1,339,422 1,446,277 7,026,776 5,792,829 - - - 687 1 - (5,602,142) (2,745,026) (1,013,728) (1,972,923) 3,005,989 83,426 (1,270,744) 11,857,202 5,574,046 4,227,662 1,170 - - - 121,103,230 94,799,231 94,604,042 83,893,808 45,883,412 41,006,520 67,989,928 60,292,578 42,887,981 21,553,913 45,894,018 17,012,820 - 56,687,909 16,743,273 26,992,121 833 - - 35 5 1,933 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 917,699,712 941,039,623 429,463,227 449,325,589 303,106,177 289,428,740 128,489,050 - 121,103,230 94,799,231 94,604,042 83,893,808 45,883,412 41,006,520 67,989,928 60,292,578 42,887,981 21,553,913 45,894,018 17,012,820 - 56,687,909 16,743,273 28,583,057 8,773,795 26,992,121 32,569,036 10,869,344 833 - - 35 5 1,933 - - - 100,409,940 35,965,927 42,988,236 (7,382,870) (10,419,200) 10,475,707 12,546,191 (1,701,912) (1,676,847) 43,137,162 136,677,687 2,235,966,452 2,262,319,257 (9,084,782) (12,096,047) 2,226,881,670 2,250,223,210 - - - 22,811,381 - - - 386,416 - - 12.47% 29,625,879 805,502,465 18,470,888 29,625,879 3,693,015 100,409,940 The number of shares issued was 1,339,622,641,509 equity stock of which the subsidiary Enersis Internacional S.A., through the inter-company debt equity conversion subscribed a total of 1,339,620,447,234 shares in two stages: 1,335,849,056,604 on February 27, 2004, and 3,771,390,630 on March 24, 2004. On March 30, 2004, Enersis Internacional S.A. transferred 760,255,861,477 shares to Chilectra S.A. so that the latter could maintain its relative ownership interest as before the increase. With this operation, Enersis S.A. and its subsidiaries direct and indirect ownership interest percentage increases from 26.47% to 18.10%. According to provisions in Technical Bulletin No. 72 of the Accountants Association of Chile A.G., for this transaction carried out in companies of the same group, a partnership assets reserve increase for a M$ 11,992,130 value has been acknowledged (see Note 17 g.) N OTE 8. I NVESTMENT I N REL ATED COMPAN IES a) Investments as of each year-end are as follows: Number of shares Percentage owned 2003 % Shareholders´equity of investee Net income of investees 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 4,919,488,794 59.98% 359,602,435 98.24% 1,529,985,763 1,568,897,981 80,084,181 83,788,756 437,157,882 457,376,117 52,756,293 77,321,577 Empresa Nacional de Electricidad S.A. Related Companies Chilectra S.A. Enersis Internacional Luz de Bogotá S.A. (2) Empresa Distribuidora Sur S.A. Investluz S.A. Distrilec Inversora S.A. Inmobiliaria Manso de Velasco Ltda. Inversiones Distrilima S.A. Elesur S.A. Endesa Market Place (3) Synapsis Colombia S.A. Luz de Río Ltda. Constructora El Gobernador Ltda. (1) Codensa S.A. Total (1) Company merged with Inmobiliaria Manso de Velasco Ltda. (2) Company dissolved during 2004. (3) Company with negative equity. Companhia de Eletricidade do Río de Janeiro 766,367,324,642 26.47% 457,564,052 523,890,321 (101,242,812) (30,959,195) Central Geradora Termelétrica Fortaleza S.A. (*) 20,246,908 48.82% 34,295,929 55,289,063 49,207,344 - 100.00% - 56,688,518 (1,270,758) 24,287,590 Compañía Americana de Multiservicios Ltda. Synapsis, Soluciones y Servicios IT Ltda. 33,821,693 10,569,721 143,996,758 16.02% 15,681,945,734 15.61% 101,684,374 20.43% 29,462,253 100.00% 95,363,337 15.93% 590,358,953 523,523,727 (27,778,921) (17,129,823) 293,938,943 262,696,531 (8,899,063) (6,494,157) 332,721,775 295,053,314 (15,646,658) (9,654,877) 42,887,996 45,894,034 1,339,422 3,005,990 135,303,911 106,797,363 9,078,950 523,706 35,969,128 42,992,062 7,027,401 5,574,542 10,476,755 12,547,446 5,793,408 4,228,085 - - - - - - - 22,811,381 386,416 833,461 1,933,022 686,771 1,169,734 - - - - - - - 99.99% 99.99% 0.00% 0.10% - - - - 1 - - 16,466,029 12.47% 29,625,879 805,502,465 18,470,888 29,625,879 2004 % 59.98% 98.24% 25.71% 18.10% 16.02% 15.61% 20.43% 100.00% 15.93% 48.82% 99.99% 99.99% 0.00% 0.10% 275 Equity in income Share of equity Unrealized income Investment book value 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 2003 ThCh$ 2004 ThCh$ 360,557,685 100.00% 100.00% 303,106,179 289,428,742 (37,606,620) (8,248,250) (37,606,620) (8,248,250) 303,106,177 289,428,740 15,529,421,297,372 25.71% 499,679,635 - 4,311,603 11,161,566 1,108,698 2,870,117 128,489,050 - 48,035,238 50,257,276 917,699,712 941,039,623 51,827,701 75,960,597 429,463,227 449,325,589 121,103,230 94,799,231 94,604,042 83,893,808 45,883,412 41,006,520 67,989,928 60,292,578 42,887,981 21,553,913 45,894,018 17,012,820 - 56,687,909 16,743,273 26,992,121 (26,795,880) (4,451,526) (1,389,130) (3,197,311) 1,339,422 1,446,277 - - 7,026,776 5,792,829 - 687 1 - (5,602,142) (2,745,026) (1,013,728) (1,972,923) 3,005,989 83,426 (1,270,744) 11,857,202 5,574,046 4,227,662 - 1,170 - - 3,693,015 35,965,927 42,988,236 (7,382,870) (10,419,200) 10,475,707 12,546,191 (1,701,912) (1,676,847) - 833 - 35 5 - 1,933 - - 100,409,940 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 917,699,712 941,039,623 429,463,227 449,325,589 303,106,177 289,428,740 128,489,050 - 121,103,230 94,799,231 94,604,042 83,893,808 45,883,412 41,006,520 67,989,928 60,292,578 42,887,981 21,553,913 45,894,018 17,012,820 - 56,687,909 16,743,273 28,583,057 8,773,795 26,992,121 32,569,036 10,869,344 - 833 - 35 5 - 1,933 - - 100,409,940 43,137,162 136,677,687 2,235,966,452 2,262,319,257 (9,084,782) (12,096,047) 2,226,881,670 2,250,223,210 d) Sale of Río Maipo e) Purchase of Elesur S.A. 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. On May 27, 2004, Enersis S.A. purchased 49,207,343 shares with no par value from Endesa International S.A., equivalent to 99.9989% of Elesur S.A. partnership assets. The price agreed for the transaction was M$ 55,551,601. 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$170 million for the shares held by Enersis and was ratified later at an Extraordinary Shareholders Enersis’ Meeting dated March 31, 2003. f) Liquidación Luz de Bogota S.A. On July 9, 2004 the subsidiary Luz de Bogotá S.A., which had investment in Codensa, was liquidated. As a result of the liquidation, the Enersis agency that owned Luz de Bogotá S.A. shares have direct investment in Codensa S.A. (12.47%). U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 276 N OTE 9. G O O DWILL AN D N EGATIVE G O O DWILL a) In accordance with current standards, recognition has been given to the excess of purchase price over the equity in net assets acquired (goodwill) in the purchase of shares as of December 31, 2003 and 2004, as follows: RUT Company 91.081.000-6 96.524.320-8 Extranjera Extranjera Empresa Nacional de Electricidad S.A. Chilectra S.A. Inversiones Distrilima S.A. Codensa S.A. As of December 31, 2003 2004 Amortization ThCh$ (44,472,559) (6,429,582) (1,270) (206,734) Net balance ThCh$ 646,704,395 103,528,346 13,976 2,859,818 Amortization ThCh$ (44,472,559) (6,429,580) (1,164) (361,226) Net balance ThCh$ 602,231,837 97,098,765 11,635 7,013,653 Total (51,110,145) 753,106,535 (51,264,529) 706,355,890 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, 2003 and 2004 as follows: Company Companhia de Eletricidade do Río de Janeiro (*) Elesur S.A. Inversiones Distrilima S.A. Synapsis Soluciones y Servicios IT Ltda. As of December 31, 2003 2004 Amortization ThCh$ 22,133,764 - 26,667 15,855 Net balance ThCh$ Amortization ThCh$ Net balance ThCh$ - - (491,129) (130,805) - - 24,423 15,855 - (95,119) (425,354) (114,952) Total 22,176,286 (621,934) 40,278 (635,425) (*) 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. N OTE 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, 2003 2004 ThCh$ ThCh$ 3,668,231 7,945,313 380,301 3,979,395 3,981 7,350 7,016,631 7,106,355 - 604,430 1,258,523 7,752,331 Total 27,395,174 12,327,667 In November 2003 the Company obtained a new loan of US$500 million which meant incurring in expenditures required to obtain the loans, which are amortized in the same term as the debt. At December 31, 2004, the balance to amortize was recorded under Other current assets for ThCh$1,416,151 (ThCh$2,016,936 in 2003) and under Other long-term assets for ThCh$3,668,231 (ThCh$7,945,313 in 2003). A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 277 N OTE 11. D U E TO BAN KS AN D FI NAN CIAL I NSTITUTI O NS a) Current portion of long-term debt due to banks and financial institutions: Financial Institution ABN Amro Bank Banco Bilbao Vizcaya Argentaria S.A. Citibank, N.A., acting through its International Banking Facility SAN PAOLO IMI S.P.A. Caja de Ahorros y Monte de Piedad de Madrid, Caja Madrid Banco Santander Central Hispano Bank of Tokio - Mitsubishi Deutsche Bank BNP Paribas, Sucursal en España Credit Lyonnais New York Branch NORD/LB NORDDEUTSCHE LANDESBANK GIROZENTR ING Bank N.V., Curaçao Branch WestLB AG, New York Branch Banco Español de Crédito, S.A., New York Branch DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Total Percentage of debt in foreign currency: Percentage of debt in local currency: Total Currency US$ Other foreign U.F. Ch$ As of December 31, 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ ThCh$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 202,375 - 121,425 121,425 202,374 121,424 40,475 - - - - - - - 7,960 7,960 - 7,959 7,958 - - - - - - - - - 809,498 31,837 - 202,375 - 121,425 121,425 202,374 121,424 40,475 - - - - - - - - 7,960 7,960 - 7,959 7,958 - - - - - - - - - 809,498 31,837 As of December 31, 2004 % 100.00 - 2003 % 100.00 - 100.00 100.00 N OTE 12. LO N G -TER M P O RTI O N O F D EBT D U E TO BAN KS AN D FI NANCIAL I NSTITUTI O NS Financial Institution Currency Banco Bilbao Vizcaya Argentaria S.A. Citibank, N.A., acting through its International Banking Facility 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 US$ US$ US$ US$ US$ US$ US$ - - - - - - - - - - - - Years to maturity After 1 year After 2 year After 3 year After 5 year but within but within 10 years 2 years ThCh$ ThCh$ but within 3 years ThCh$ Total long-term portion ThCh$ Average annual interest rate % 3.42% Total long-term portion- 2003 ThCh$ 76,080,625 After 10 years years Thch$ - - - - - - - - 48,772,500 48,772,500 - 48,772,500 - - - 48,772,500 - 0.00% - 3.42% - 3.42% 3.42% - 3.42% - - - - - 76,080,625 45,648,375 45,648,375 45,648,375 15,216,125 but within 5 years ThCh$ 48,772,500 48,772,500 48,772,500 - - 48,772,500 - Total - - 195,090,000 - - - 195,090,000 304,322,500 Percentage of debt in foreign currency: Percentage of debt in local currency: Total As of December 31, 2003 2004 % % 100.00 100.00 - - 100.00 100.00 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 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 278 On April 15, 2004, Enersis S.A. prepaid US$ 150 million of the syndicated loan obtained in November, 2003, for US$ 500 million. The US$350 million balance was refinanced in November, 2004, through revolving overdraft lines whose expiration term is 4 years. It is possible to prepay and draw during the contract effectiveness. The interest (spread) depends or the corporate rating given by S&P. Currently it is BBB, for which initially it will be 0.375%. The US$ 350 million balance was refinanced in November, 2004, through revolving overdraft lines whose expiration term is 4 years. It is possible to prepay and draw during the contract effectiveness. The interest (spread) depends or the corporate rating given by S & P. Currently BBB-, for which initially it will be 0.375%. N OTE 13. OTHER CU RRENT LIABILITIES Other current liabilities at each year-end are as follows: Fair value - derivative contracts Swap collar rate contract 2003 ThCh$ As of December 31, 2004 ThCh$ 14,051,088 59,127,083 - 9,641,028 Total 9,641,028 73,178,171 N OTE 14. BO N DS PAYABLE a) Details of the current portion of bonds payable is as follows at each year-end: Instrument Yankee Bonds Yankee Bonds Yankee Bonds Yankee Bonds II Bono N° 269 Bono N° 269 Total Face value Series outstanding Currency Interest rate Maturity date 1 2 3 1 B-1 B-2 300,000,000 350,000,000 858,000 350,000,000 45,167 1,935,000 US$ US$ US$ US$ U.F. U.F. 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% 01-12-2006 01-12-2016 01-12-2026 01-12-2014 15-06-2009 15-06-2022 As of December 31, 2003 ThCh $ 1,049,913 1,313,658 2,872 1,571,066 156,578 79,276 2004 ThCh $ 961,515 1,203,055 2,630 6,743,476 72,621 79,158 4,173,363 9,062,455 b) Details of the long-term portion of bonds payable is as follows at each year-end: Instrument Yankee Bonds Yankee Bonds Yankee Bonds Yankee Bonds II Bono N° 269 Bono N° 269 Total Series Face value outstanding Currency Interest rate Maturity date 1 2 3 1 B-1 B-2 300,000,000 350,000,000 858,000 350,000,000 45,167 1,935,000 US$ US$ US$ US$ U.F. U.F. 6.90% 7.40% 6.60% 7.38% 5.50% 5.75% 01-12-2006 01-12-2016 01-12-2026 01-12-2014 15-06-2009 15-06-2022 As of December 31, 2003 2004 ThCh$ ThCh$ 167,220,000 182,593,500 213,025,750 195,090,000 478,249 213,025,750 195,090,000 642,009 33,508,492 696,053 33,558,705 522,217 c) Bonds payable are comprised of the following: Series 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: B1 B1 B2 B2 643,421,975 592,028,750 Total amount In UF 1,000,000 3,000,000 1,000,000 1,500,000 N° of bonds per series 1,000 300 1,000 150 Face value In UF 1,000 10,000 1,000 10,000 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 279 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$63,656,587 (historical) into 893,612,466 first issue shares. Underwritten amounts were determined by experts. Capitalized amounts were ThCh$46,968,179 (historical) for the B1 series and ThCh$7,028,065 (historical) for the B2 series. Interest is paid on a semi-annual basis and principal is due upon maturity. During the second half of 2004, second half, debts have been re-nominated through US$/UF swap contracts for the total of this issue. 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, 2004 amounts to ThCh$7,016,631 (ThCh$7,106,355 in 2003), are included in “Other assets” and ThCh$926,826 (ThCh$683,192 in 2003) are included in “Other current assets”. ii. Yankee Bonds On November 21, 1996, the Company, acting through its agency in the Cayman Islands, issued corporate notes (Yankee Bonds) for US$800 million in three series, as follows: Series 1 2 3 Total amount In US$ 300,000,000 350,000,000 150,000,000 Years to maturity 10 20 30 Stated annual interest rate 6.90% 7.40% 6.60% 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. During 2004 second half, debts have been re-nominated through UF/US $ s wap contrac t s for an amount o f US$100,000,000 associated to the tranche 1 bond and US$250,000,000 associated to tranche 2. N OTE 15. ACCRU ED E XPENSES a) Short-term accruals: Accrued expenses included in current liabilities as of each year- end are as follows: Negative equity of investments Profit sharing and other employee benefits Commission banks provision Contracts collar expeneses provision Notes receivable provision As of December 31, 2003 2004 ThCh$ ThCh$ 14,600,121 11,390,613 2,308,813 2,088,763 - 1,485,095 - 5,875,944 1,103,161 1,342,935 Total 22,183,350 18,012,095 (*) Provision for ownership in negative equity of Luz de Rio Limitada and Endesa Market Place for ThCh$14,374,557 (ThCh$11,159,410 in 2003 and ThCh$225,564 (ThCh$231,203 in 2003) respectively. During 2003 and 2004 there were no debt write-offs. iii. Yankee Bonds II b) Long-term accruals: Accrued expenses included in long term liabilities as of each year-end are as follows: On November 24 2003, the Corporation, through its Cayman Islands Agency, issued and placed Yankee Bonds on the American market for US$350 million. This placement was made in a single Series, whose features are as follows: As of December 31, 2003 ThCh$ 1,998,543 566,869 2004 ThCh$ 1,797,742 767,329 Series 1 Total amount In US$ 350,000,000 Years to maturity 10 Stated annual interest rate 7.375% Severance indemnities Post-retirement benefits Total 2,565,412 2,565,071 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 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 280 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 Ch$7,028,065,024 for series B2, at Ch$ 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$75,195,523,918 were subscribed. The second share underwriting period concluded on December 30, 2003, determining the capital increase, in which 99.9% of the capital authorized by the Extraordinary General Meeting of Shareholders, in other words 24,360,146,365 shares, was subscribed, leaving Enersis’ capital with a total of 32,651,166,465 subscribed and paid in shares. b) Dividends During the years ended December 31, 2003 and 2004 the Company no paid dividends c) Number of shares As of December 31, 2004 and December 31, 2003, respectively the number of shares authorized, issued and outstanding was 32,651,166,465 all of which have voting rights. N OTE 16. SE VER ANCE I N D EM N ITIES Include employee severance indemnities, calculated in accordance with the policy described in Note 2n, post-retirement benefits and others. An analysis of the changes in the accruals in each year is as follows: Opening balance as of January 1 Increase in accrual Payments during the year As of December 31, 2003 ThCh$ 1,474,295 922,551 (398,303) 2004 ThCh$ 1,949,797 126,497 (278,552) Total 1,998,543 1,797,742 N OTE 17. SHAREH O LD ERS’ EQ U IT Y 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) 2) 3) 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$60.4202 per share. Voluntary redemption of local bonds (from November 1 to 15), in which holders of local 269 bonds (series B1 and B2) may exchange their bonds for Enersis shares, according to the value assigned by the aforementioned independent expert and at placement price - Ch$ 60.4202 per share. 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. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 281 d) Subscribed and paid capital is as follows as of the e) Accumulated net income (losses) of development- year-end: stage subsidiaries are as follows: As of January 1, Intercompany loan capitalization Bonds capitalization Subscribed shares As of December 31, 2004 ThCh$ 2003 ThCh$ 777,688,287 2,283,404,124 890,441,338 55,176,024 560,098,475 Company Central Generadora Termoelectrica Fortaleza S.A. As of December 31, 2004 Net income (loss) for the period ThCh$ Retained earnings (accumulated deficit) ThCh$ (2,673,664) Total - (2,673,664) As of December 31, 2,283,404,124 2,283,404,124 f) Other information Detail of other reserves is as follows: Reserve for transaction entities using remeasurement method Reserve for accumulated conversion differences Reserve for Technical Bulletin No. 72 (1) Initial balance at January 1, 2004 ThCh$ (10,499,405) (15,814,072) - Reserve for the period ThCh$ (4,435,524) (103,832,123) 11,992,130 Final balance at December 31, 2004 ThCh$ (14,934,929) (119,646,195) 11,992,130 Total (26,313,477) (96,275,517) (122,588,994) Detail of changes in the reserve for accumulated conversion differences are as follows for the year ended December 31, 2004: Cumulative translation adjustment Initial balance at January 1, 2004 ThCh$ (15,814,072) Reserve for assets ThCh$ (109,623,996) Reserve for liabilities ThCh$ 5,791,873 Final balance at December 31, 2004 ThCh$ (119,646,195) Total (15,814,072) (109,623,996) 5,791,873 (119,646,195) 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 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 282 The detail of the accumulated conversion difference reserve N OTE 18. OTHER I NCOME AN D E XPENSES at December 31, 2004 is as follows: Distrilec Inversora S.A. Inversiones Distrilima S.A. Cía. Peruana de Electricidad S.A. Edesur S.A. Compañía de Electricidade do Rio de Janeiro S.A. Luz de Bogotá S.A. Investluz S.A. Central Geradora Termelétrica Fortaleza S.A. Enersis Energía de Colombia Endesa Market Place Endesa Argentina S.A. Endesa Chile Interncional S.A. Codensa S.A. Endesa de Colombia S.A. Central Costanera S.A. Conosur S.A. Capital de Energía S.A. Ingendesa Do Brasil Ltda. ThCh$ (16,109,082) (6,111,287) (36,678) (19,299,737) (35,101,980) 2,361,312 (1,981,396) (4,131,448) (561,859) 376,205 8,772 (3,028,008) (27,711,750) 70,212 (307,841) (8,001,621) (8,544) (71,465) a) The detail of other non-operating income in each year is as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ Adjustments to investment in related companies 299,592 865,132 Proyect administration, maintenance and construction 9,048,147 8,603,548 Gain on sales of Compañía Eléctrica del Río Maipo S.A. 90,022,773 - Other Total 2,855,589 526,340 102,226,101 9,995,020 b) Other non-operating expenses in each year are as follows: As of December 31, 2003 ThCh$ 2004 ThCh$ Total (119,646,195) Provision of negative equity of Luz de Rio Ltda. 12,421,395 1,079,587 Adjustments to investments in related companies 2,420,753 404,108 Fair value swap US$/UF Provisions Other tax expenses Other Total - 13,326,522 5,875,946 767,530 - - 2,201,101 1,149,791 23,686,725 (15,960,008) A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 19. PRICE-LE VEL RESTATEMENT The (charge) credit to income for price-level restatement as of each year-end is as follows: 283 Assets Property, plant and equipment Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries short-term Accounts receivable from subsidiaries long-term Investment in subsidiaries Investment in other companies Amortization of goodwill Current assets Other assents Credit for cost and expense accounts Net credit-assets Liabilities and Shareholders´ equity Shareholders´equity Current liabilities and long- term Accounts payable to subsidiaries short-term Accounts payable to subsidiaries long-term Due to banks and financial institutions short-term Due to banks and financial institutions long-term Bonds payable long-term Non monetary liabilities Charge to income accounts Index As of December 31, 2003 ThCh$ 144,975 1,203,042 162 4,227,842 17,878,118 7,391,760 7,325,644 7,186 72,301 38,096 2004 ThCh$ 336,813 730,837 1,198,133 8,721,259 43,433,674 10,560,355 18,445,562 27,959 9,918,959 307,069 38,289,126 93,680,620 (7,113,470) (63,692,887) 16,094 (272,181) - (11,473,763) 60,686 (16,043,402) (2,209,726) (11,297,311) - (55,763) - (5,107,139) (5,500,995) (14,857,900) (1,375,810) 637,956 - (352,902) 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. I.P.C. I.P.C. I.P.C. U.F. I.P.C. U.F. I.P.C. I.P.C. I.P.C. U.F. I.P.C. Net charge-liabilities and shareholders´equity (42,825,978) (95,812,535) Net credits (charges) to income (4,536,852) (2,131,915) 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 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 284 N OTE 20. E XCHAN GE D IFFEREN CES The (charge) credit to income for foreign currency translation as of each year-end is as follows: Assets Current assets Cash Time deposits Other current assets Amounts due from related companies Non-current assets Amounts due from related companies Forward Investment in other companies As of December 31 , Liabilities Currency 2003 ThCh$ 2004 ThCh$ Current liabilities Currency US$ US$ US$ US$ US$ US$ US$ 101,719 425,827 Due banks and financial institutions (17,050,586) (1,329,942) Amount payable to related companies (162,567) (157,456) (97,199) Forward 607,795 Other liabilities Long-term liabilities (99,375,631) (25,123,690) Due banks and financial institutions 22,423,766 - Bonds payable - (2,195,183) Amount payable to related companies US$ US$ US$ US$ US$ US$ US$ As of December 31 , 2003 ThCh$ 2004 ThCh$ 683,497 - 316,234 2,065,808 (10,754,914) 3,870,965 (65,769) 28,554 65,679,669 22,551,689 (37,997) 4,292,202 69,696,510 - Total gain (loss) (94,220,755) (27,712,392) Total gain (loss) 125,517,230 32,809,218 Exchange difference- net income (loss) 31,296,475 5,096,826 N OTE 21. C ASH FLOW STATEMENT N OTE 22. SHARE ISSUANCE COSTS a) Other financing receipts: Forward contract payments As of December 31 2003 ThCh$ 18,153,248 2004 ThCh$ 12,644,430 Total 18,153,248 12,644,430 b) Other financing disbursements: Commissions on debt refinancing Forward contract payments Collar and collateral derivative contracts premiums Payments by bond issue Others As of December 31 2003 2004 ThCh$ ThCh$ 1,629,494 40,958,730 - 15,108,962 - 5,595,666 1,082,933 - - 148,759 Total 61,812,117 2,712,427 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: Appraisal services Printing costs Legal cost Financial adviser DCV commissions Bank commissions Risk classification services As of December 31 2003 ThCh$ 77,209 14,303 204,989 10,637,039 3,065 1,485,095 143,103 2004 ThCh$ 77,209 14,303 204,989 10,734,121 3,065 1,968,639 143,103 Total 12,564,803 13,145,429 During the current fiscal year expenses for bank commissions have been acknowledged for M$ 469,460, and expenses for financial consulting for M$ 94,254 regarding capital increase. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 285 N OTE 23. FI NANCIAL D ERIVATIVES As of December 31, 2004 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 Type Contract Amount Maturity Item Sales/ Purchase Hedged Item US$ Amount Hedged item ThCh$ Amount ThCh$ Accounts Assets / Liabilities Income Account Amount ThCh$ Realized Unrealized ThCh$ ThCh$ OE S S S CCTE CCPE CCPE CCPE 350,000,000 II- 2006 Interest rate 350,000,000 I- 2014 Exchange rate 100,000,000 IV-2006 Exchange rate 250,000,000 IV-2016 Exchange rate P P P P Bank obligations 195,090,000 195,090,000 Other liabilities long-term (1,802,583) (3,811,376) (544,059) Other current assets 195,090,000 195,090,000 Other liabilities long-term (15,541,547) 859,202 (15,541,547) Other current assets 55,740,000 55,740,000 Other liabilities long-term (7,238,283) 341,449 (7,238,283) Other current assets 139,350,000 139,350,000 Other liabilities long-term (522,520) 785,315 (522,520) (1) Fr = Forward, S = Swap NOTE 24. COM MITMENTS AND CO NTINGENCIES Arbitration Court had been processed on the request of the Republic of Argentina. a) Litigation and other legal actions: Plaintiff : : Defendant Court : Case/Identification : Enersis S.A., Chilectra S.A., Empresa Nacional de Electricidad S.A., Elesur S.A. The Republic of Argentina CIADI Arbitration Panel (CIADI Case # ARB/03/21) Compensation for losses caused to the Plaintiff is investment in the Republic of Argentina is requested in connection with the participation in the power distribution concessionaire Edesur S.A. on the grounds of violation of the Investment Protection and Promotion Agreement entered into by the Republics of Chile and Argentina, and the Argentinean Government behavior through the passing of Public Emergency Law 25,561, dated January 6, 2002. The said behavior has also seriously affected the economic and financial balance of the Granting Contract between Edesur S.A. and the Argentinean National State. The said Law authorized a re-negotiation process of the Granting Contracts with the purpose of re-composing the economic-financial equation affected by the conversion to pesos, at US$ 1 = $ 1, of tariff values calculated in American dollars, and the prohibition to apply biased tariff updating. In the practice, this process has not been promoted by the Government, and no measures to prevent losses for the Plaintiff have been formalized. Edesur S.A. has been deprived of receiving the tariffs indicated in the regulations and in the said Granting Contract, being therefore harmful for the investment the Plaintiff companies have made. Process status: On October 18, 2004, a copy of the lack of jurisdiction petition filed by the Republic of Argentina was received. On December 17, 2004 the said petition was answered and confirmation of the CIADI jurisdiction was requested. Lack of jurisdiction of the Amount involved: US$ 574,739,500. 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 7.0x; 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 1.6x; 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 r e h o l d e r s ’ e q u i t y a t l e a s t e q u a l t o ThCh$456.840.000 (U.F.27 million) As of December 31, 2004 all these obligations have been • • • • • • • met. As a common and habitual practice for some bank loan debts and also in capital markets, a substantial portion of Enersis S.A.’s financial indebtedness is subject to cross-failure provisions. Some failures of relevant subsidiaries, if not corrected in time (as to those specific provisions allowing a year of time to correct the problem), U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 286 might result in the cross-failure at the Endesa-Chile and Enersis S.A. level., and, in this case, significant percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. Non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to some of their most relevant subsidiaries for an individual amount exceeding the equivalent of 30 million dollars, would cause advanced payment of syndicated credits contracted in 2004. Also, non-payment, after any applicable grace period, of these companies’ debts or of those corresponding to any of their subsidiaries for individual amounts exceeding the equivalent of 30 million dollars, would cause advanced payment of Yankee bonds. In addition, some credit agreements contain provisions according to which certain events different from non-payment in these companies or in any of their most relevant subsidiaries, such as bankruptcy, insolvency, adverse executed legal sentences for amounts larger than US$ 50 million, and expropriation of assets, may cause those credits acceleration declaration. There are no clauses in the credit agreements through which changes in these companies corporate or debt classification by risk classification agencies may cause and obligation to make debt prepayments. However, according to the Standard & Poor (S&P) risk classification agency, a variation in the foreign currency debt risk classification produces a change in the applicable margin of syndicated credits contracted in 2004. N OTE 25. SU RE TIES O BTAI N ED FROM TH IRD PARTIES As of December 31, 2004, the Company has received sureties as follows: Operation Contractor CIA. DE TELECOMUNICACIONES DE CHILE METROPOLIS INTERCOM S.A. COMPLEJO MANUFACTURERO DE EQUIPOS TELEFONICOS AT & T CHILE NETWORKS S.A. GTD TELEDUCTOS SMARTCOM S.A. EMPRESA NACIONAL DE TELECOMUNICACIONES AGUAS ANDINA BELLSOUTH COMUNICACIONES Support contract Support contract Seriousness of supply Support contract Support contract Supplies Enersis Support contract Support contract Support contract Others Total As of December 31, 2003, the Company has received sureties as follows: Operation Contractor METROPOLIS INTERCOM CIA. DE TELECOMUNICACIONES DE CHILE VTR GLOBAL COM GTD TELESAT S.A. AT & T CHILE NETWORKS S.A. EMPRESA NACIONAL DE COMUNICACIONES Support contract Support contract Support contract Support contract Support contract Support contract Others Total Relation Third Third Third Third Third Third Third Third Third Relation Third Third Third Third Third Third Third Amount ThCh$ 51,085 53,943 34,634 17,317 17,317 17,317 15,759 8,658 8,658 18,306 242,994 Amount ThCh$ 54,024 51,162 22,754 17,343 17,343 15,782 55,377 233,785 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S N OTE 26. FO REI G N CU RRENCIES As of December 31, 2003 and 2004, foreign currency denominated assets and liabilities are as follows: 287 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 Ch$ US$ US$ Ch$ Ch$ Ch$ US$ U.F. Ch$ Ch$ Ch$ Ch$ US$ Currency Ch$ Ch$ Ch$ Ch$ Ch$ As of December 31, 2003 ThCh$ 184,108 157,133 1,181,114 755 1,774,192 116,268,976 11,810,607 482,975 14,843,891 55,432 28,516,072 8,672,345 8,631,079 2004 ThCh$ (52,007) 134,274 9,176,155 737 2,227,626 - 13,503,823 13,222,266 148,196 - - 42,802,273 18,136,958 192,578,679 99,300,301 As of December 31, 2003 ThCh$ 21,318,189 2,359,443 818,188 34,005 (11,919,198) 2004 ThCh$ 21,318,134 2,196,587 1,158,196 33,988 (12,530,600) 12,610,627 12,176,305 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 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 288 c) Other assets Account Investment in related companies Investment in other companies Goodwill, net Negative goodwill, net Other receivables Amount due from related companies Intangibles Less: Acculated amortization Other assets Total other assets Total assets by currency Total d) Current liabilities Currency Ch$ US$ US$ Ch$ US$ Ch$ US$ Ch$ US$ U.F. Ch$ Ch$ Ch$ US$ Ch$ US$ U.F. As of December 31, 2003 ThCh$ 1,730,514,818 496,366,852 - 750,232,740 2,873,795 (130,805) (491,129) 487,265 451,554,968 - 1,473,876 (434,208) 19,038,412 8,356,762 2004 ThCh$ 1,825,816,192 424,407,018 15,508,173 699,330,602 7,025,288 (114,952) (520,473) - 344,094,100 89,953,435 1,473,876 (508,041) 12,327,667 - 3,459,843,346 3,418,792,885 2,684,108,496 980,441,181 482,975 2,627,121,059 813,046,801 90,101,631 3,665,032,652 3,530,269,491 Account Currency Amount Avg Rate Amount Avg Rate Amount Avg Rate Amount Avg Rate ThCh$ % ThCh$ % ThCh$ % ThCh$ % Within 90 days 91 days to 1 year As of December 31, 2003 As of December 31, 2004 As of December 31, 2003 As of December 31, 2004 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 US$ U.F. US$ Ch$ Ch$ US$ Ch$ U.F. Ch$ US$ Ch$ Ch$ Ch$ Ch$ $ no Reaj. US$ $ no Reaj. U.F. Ch$ US$ - - 235,854 5.06 3,937,509 114,402 177,329 - 247,085 - - - - - - - 31,837 151,779 8,910,676 53,507 187,258 - 94,604 - 30,983,207 4.92 74,817,636 52,779 2,088,763 136,704 16,691,677 139,111 - 8,680,005 - 235,854 50,578,278 12,670,293 - - - - - - - - 53,471 3,637,538 193,498 - 31,379 - 98,023 446,036 151,779 79,461,456 9,094,007 - - - - - - - - - - - - - - - - - 809,498 3.35 - - - - - - - - - - - - 2,406,565 5.16 - - - - - - - - - - 1,366,894 20,094,587 - - - - - - 2,406,565 20,094,587 2,176,392 - - - - - - - - - 1,251,809 14,374,557 - - - - - - - 14,374,557 1,251,809 - - - - - - - - - - - - - - - - - Total current liabilities 63,484,425 88,707,242 24,677,544 15,626,366 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 289 e) Long-term liabilities, December 31, 2004 Account Currency 1 to 3 years 3 to 5 years 5 to 10 years Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % Amount ThCh$ Avg Rate % More than 10 years Amount ThCh$ Avg Rate % Due to banks and financial institutions Bonds payable Accrued expenses Deferred income taxes Other liabilities Total long-term liabilities by currency US$ U.F. US$ Ch$ Ch$ US$ U.F. Ch$ US$ - 2,411,939 - - 3,520,749 73,178,171 2,411,939 76,698,920 - - - - - - - 195,090,000 2.84 3,238,023 - - - - 3,238,023 - 195,090,000 - - - - 9,088,115 - - - - 767,329 6.50 - - - - 9,088,115 767,329 - - 19,412,424 557,878,249 1,797,742 - - 19,412,424 1,797,742 557,878,249 - - 7.39 6.50 - - Total current liabilities 79,110,859 198,328,023 9,855,444 579,088,415 f) Long-term liabilities, December 31, 2003 Account Currency Amount Avg Rate Amount Avg Rate Amount Avg Rate Amount Avg Rate 1 to 3 years 3 to 5 years 5 to 10 years More than 10 years Due to banks and financial institutions Bonds payable Amounts payables to related companies Deferred income taxes Other liabilities Total long-term liabilities by currency US$ U.F. US$ Ch$ US$ Ch$ US$ U.F. Ch$ US$ ThCh$ % ThCh$ % ThCh$ % ThCh$ % - - 304,322,500 3 - - - - 954,080 6 3,152,900 0.0554 8,694,941 0.0563 21,452,837 0.0575 - - - 4,818,080 - 9,641,028 954,080 4,818,080 - 182,593,500 0.069 - - 426,573,717 0.0738 - - - - - - - - - 3,152,900 486,916,000 - - - - 566,869 0.095 1,998,543 0.095 - - - - - - - - - - - - 8,694,941 566,869 - 21,452,837 1,998,543 426,573,717 Total long-term liabilities 15,413,188 490,068,900 9,261,810 450,025,097 N OTE 27. SANC TI O NS N OTE 29. ENVIRO N MENT The Company and its directors has not been the subject to As of December 31, 2004, the Company has not incurred in sanctions by the SVS nor by any other administrative authorities. environmental expenses. N OTE 28. SU BSEQ U ENT E VENTS No significant events that might affect these financial statements have occurred in the period from January 1, 2005 to their date of issue. 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 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 290 U N C O N S O L I D A T E D M A T E R I A L I N F O R M A T I O N CER J C APITAL I NCRE ASE The company informed the regulatory authority on March 1 and 25, 2004 about progress and the conclusion of the capital increase of the Brazilian electricity distribution subsidiary, Cerj, as follows: 1. 2. 3. 4. 5. The Brazilian subsidiary of Enersis S.A., Companhia de Eletricidade do Río de Janeiro S.A. (Cerj) has made and concluded a capital increase amounting to BR$710,000,000 (approximately US$243 million) through the issue of 1,339,622,641,509 new common shares at BR$0.53 for every 1,000 shares. On February 27, 2004, and within the financial strengthening plan for its subsidiary Cerj, Enersis subscribed, through its subsidiary Enersis Internacional, for a total of 1,335,849,056,604 shares in the new issue of Cerj, corresponding to the whole of the rights of the Contolling Group (99.3% approximately) in this company. Endesa Spain, Electricidade de Portugal S.A. and Chilectra S.A. (the members of the Controlling Group) had previously ceded their preemptive rights to Enersis which therefore subscribed for its own rights and those thus ceded to it. In addition, Enersis, acting as above, subscribed during the offer of the remaining portion of this capital increase that was not acquired by the minority shareholders in Cerj, i.e. a further 3,771,390,630 common shares. Enersis, through its subsidiary Enersis Internacional, therefore subscribed for a total of 1,339,620,447,234 new Cerj common shares. Enersis has paid for the shares subscribed for through the capitalization of various loans that had made indirectly to Cerj. Enersis will transfer to its subsidiary Chilectra, operating directly or through its agency and 10 subsidiaries, 760,255,861,477 shares issued by Cerj that were recently subscribed by Enersis in the above capital increase. This transfer will be made at BR$0.53 for every 1,000 shares of Cerj. As a result of this share sale, the shareholdings in Cerj will be as follows: Electricidade de Portugal 7.70%, Endesa Spain 10.71%, Enersis 35.13%, Chilectra 46.10% and others 0.36%. As a result of the above subscription by Enersis of the capital increase in Cerj and the share transfer to Chilectra, the subsidiary Cerj has reduced its debt substantially, without causing any effects to the results of Enersis. Registration of International Bonds with the Securities and Exchange Commission, SEC. 1. 2. 3. In November 2003, Enersis, acting through its Agency in Cayman Islands (hereinafter Enersis), placed bonds, not registered with the SEC, with institutional investors on the American and European markets under Rules 144A and S for a total of US$350 million, as was informed at the time. These bonds were later listed on the Luxembourg Stock Exchange. In accordance with the respective Offering Memorandum dated November 19, 2003, Enersis has obtained, on August 6, 2004, the registration with the SEC of a new bond issue through the approval of the document called F-4/A. This registration will enable, within a sole period of at least 20 business days, the holders of the issue mentioned in 1. above to exchange these for the new bonds as described below. The new bonds will also be issued by Enersis, in the same way as described in 1. above, for a total amount of up to US$ 350 million repayable in full on January 15, 2014 and with an interest coupon of 7.375% p.a. The new bonds will have the same financial characteristics as the bonds issued November 2003, except that their registration with the SEC will give these securities greater potential liquidity to the benefit of their bond-holders. Once the exchange period is concluded, these will be issues by Enersis and listed on the Luxembourg Stock Exchange. Interim Dividends The board of Enersis, on January 28, 2004, agreed unanimously not to distribute an interim dividend in February 2004 against the results of 2003, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. The board of Enersis, on April 28, 2004, agreed unanimously not to distribute an interim dividend in May 2004 against the results to March 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. The board of Enersis, on July 28, 2004, agreed unanimously not to distribute an interim dividend in August 2004 against the results to June 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. The board of Enersis, on October 27, 2004, agreed unanimously not to distribute an interim dividend in November 2004 against the results to September 2004, in accordance with the current dividend policy, because the conditions for doing so, as set out in that dividend policy, were not met. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 291 M A N A G E M E N T ’ S A N A LY S I S O F T H E 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 F o r t h e y e a r e n d e d d e c e m b e r 31, 2 0 0 4 1. ANALYSIS O F TE U N CO NSO LI DATED FI NANCIAL STATEMENTS 1. Analysis of the Statement of Income The company’s net income for 2004 amounted to Ch$44,408 million, signifying an increase of Ch$31,528 million over the Ch$12,780 million earned in 2003. The following provides a comparison of each item in the statement of income: Statement of Income (millions of Ch$) Sales Cost of sales Operating margin Admin. & selling expenses Operating income Income (loss) on investments in related companies Non-operating income & expenses, net Financial margin, net Amortization goodwill Price-level restatements Exchange differences Non-operating result Income before taxes Amortization negative goodwill Net income for the year EBITDA (*) Earnings per share dec-03 4.440 (1.158) 3.282 (17.444) (14.162) 43.138 78.539 (105.512) (51.110) (4.537) 31.296 (8.186) 12.952 22.176 12.780 97.540 0,39 (*) Income before taxes, interest, depreciation, amortization & extraordinary items. dec-04 Change Dec 04-03 % Change Dec 04-03 4.433 (1.101) 3.332 (17.315) (13.983) 136.678 (5.965) (41.108) (51.265) (2.132) 5.097 41.305 16.946 40 44.308 157.303 1,36 (7) 57 50 129 179 93.540 (84.504) 64.404 (155) 2.405 (26.199) 49.491 3.994 (22.136) 31.528 59.763 0,97 (0,2%) (4,9%) 1,5% (0,7%) (1,3%) 216,8% (107,6%) (61,0%) 0,3% (53,0%) (83,7%) (604,6%) 30,8% (99,8%) 246,7% 61,3% 248,7% The operating income showed no important changes over 2003. The non-operating result showed an improvement of 604.6% (Ch$49,491 million), passing from a loss of Ch$8,186 million in 2003 to a profit of Ch$41,305 million in 2004. increase of Ch$93,540 million. This was mainly due to improved results on investments in Chilectra, Endesa, Inmobiliaria Manso de Velasco, Enersis Internaciona, Edesur, Distrilec, Codensa, CGTF, Cerj and Investluz of Ch$100,531 million, offset by the weaker results of Elesur, Synapsis IT, Cam and Distrilima of Ch$6,991 million. The following are explanations for this: compared to the year before. The amortization of goodwill shows no important changes The net financial margin showed a positive change of Ch$64,404 million compared to the previous year, mainly due to reduced third-party financing expenses of Ch$63,860 million and lower net financial income and expenses with related companies of Ch$544 million. Investments in related companies show a net income in 2004 of Ch$136,678 million compared to Ch$43,138 million in 2003, an Other non-operating income and expenses produced a net loss of Ch$5,965 million in 2004, compared to net income of Ch$78,539 million in 2003, resulting in a negative change of Ch$84,504 million. This is explained by: a) A reduction in the gain of sale of shares of Cía. Eléctrica del Río Maipo of Ch$90,023 million. U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S U N C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 292 b) c) Increase in the net loss for the fair value of bonds and US$-UF swap derivative contracts of Ch$13,327 million. Exchange and Interest Rate Risk Analysis A net gain in the adjustment of investments in related companies of Ch$2,582 million. d) Reduction in the loss for negative equity provision of Ch$11,342 million. Price-level restatements and exchange differences produced a net negative change of Ch$23,794 million, passing from a gain of Ch$26,759 million in 2003 to one of Ch$2,965 million in 2004. This mainly arose from the effects of the nominal appreciation of the Chilean peso against the dollar of 6.13% in 2003 compared to an appreciation of 17.4% in 2003. Income tax and deferred taxes show a positive change of Ch$3,994 million due to the increase in tax losses in 2004. In 2003, this item was offset by the charge for income tax on the sale of Río Maipo S.A. Amortization of negative goodwill showed a negative change of Ch$22,136 million due to the accelerated depreciation applied to the negative goodwill in Cerj. 2. Balance Sheet Analysis Comparative balance sheets figures are as follows: The company has a high proportion of its loans denominated in US dollars as, under Chilean electricity legislation, the tariffs have a high degree of indexation to that currency. Despite this natural cover of an economic nature, the company, in a scenario of high dollar volatility, has continued with its policy of partially hedging its dollar liabilities in order to attenuate the fluctuations caused to the results by changes in the exchange rate. In view of the important reduction in the accounting mismatch in recent years, which have reached prudent levels, the company has amended its dollar-peso hedging policy and established a cash-flow hedging policy together with a maximum accounting mismatch limit over which hedging transactions should be carried out. At December 31, 2004, the company in unconsolidated terms has dollar-UF swaps for an amount of US$700 million. This compares with US$219 million in forward cover contracts (for the sale of US$) at the end of 2003. The change is mainly due to the amendment to the hedging policy mentioned above. With respect to interest rate risk, the company has, in consolidated terms, a rate of fixed to floating rate debt of approximately 98% / 2%. The fixed-rate percentage has declined slightly compared to the year before when it was 100%. Assets (millions of Ch$) Current assets Fixed assets Other assets Total assets dec-03 192,579 12,611 3,459,843 dec-04 99,300 12,176 3,418,793 (93,279) (435) (41,050) 3,665,033 3,530,269 (134,764) (48.4%) (3.4%) (1.2%) (3.7%) Change 04-03 % Change 04-03 The company’s total assets reduced by Ch$134,764 million d) compared to December 2003, mainly due: Reduction in capitalized expenses related to bank debt refinancing of Ch$4,875 million and to collar contracts of Ch$7,161 million. a) b) c) Reduction in accounts receivable from related companies at short and long term of Ch$119,196 million, mainly in the trading current accounts with Chilectra and Endesa of Ch$99,552 million. Reduction in goodwill of Ch$46,751 million. Reduction in the determination of un-realized income on derivative contracts of Ch$7,324 million and a fall in accounts receivable on derivative contracts due to adjustment to fair value of Ch$1,434 million. e) Reduction in recoverable taxes of Ch$14,844 million. f) g) Reduction through the liquidation of forward contracts of Ch$8,631 million. Increase in the investment in related companies of Ch$23,341 million, mainly due to recognition of the result of Ch$136,678 million, net increase in the incorporation of investments of Ch$14,284 million, compensated by recognition in reserves of Ch$66,470 million and dividends received of Ch$64,275 million. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 293 h) i) j) k) Increase in investment in other companies of Ch$15,508 million for the liquidation in April 2004 of Luz de Bogotá. Increase in sales under repurchase agreements of Ch$14,592 million. Increase in deferred taxes of Ch$14,286 million. Increase in time deposits of Ch$7,736 million. Liabilities Comparative balance sheets figures are as follows: Liabilities (millions of Ch$) Current liabilities Long-term liabilities Shareholders’ equity dec-03 88,162 964,769 2,612,102 dec-04 104,334 866,382 2,559,553 Change 04-03 % change 04-03 16,172 (98,387) (52,549) 18.3% (10.2%) (2.0%) (3.7%) Total liabilities & shareholders’ equity 3,665,033 3,530,269 (134,764) Liabilities declined by 7.81% (Ch$82,215 million) compared to d. the year before due to: Reduction in income tax payable of Ch$16,692 million and in long-term deferred taxes of Ch$1,297 million. a. b. c. Reduction in long-term bank borrowings of Ch$109,233 million due to the repayment of the syndicated loan for Ch$89,492 million and exchange differences of Ch$19,741 million. e. f. Reduction in long-term bonds payable of Ch$51,393 million principally due the effect of the exchange rate. Increase in short-term accounts payable to related companies of Ch$41,314 million. Increase in negative equity of investments of Ch$3,210 million. Increase in other short and long-term liabilities of Ch$55,401 million due to the spot accounting of swap and collar contracts of Ch$56,419 million compensated by a reduction in the determination of fair value of the derivative contracts of Ch$1,018 million. With respect to shareholders’ equity, this reduced by Ch$52,549 compared to December 31, 2003. This is mainly explained by a reduction is reserves of Ch$96,276 million, a reduction in share premium by Ch$581 million, compensated by net income for the year of Ch$44,308 million. Principal indicators Indicator Liquidity Debt Current ratio Acid test (1) Working capital Debt ratio Short-term debt Long-term debt Financial expense coverage (2) times Profitability Return on equity Return on assets % % (1) Current assets less inventories and prepaid expenses (2) EBITDA divided by financial expenses. Unit times times dec-03 2,18 2,18 0,95 0,95 (1,23) (1,23) Ch$ millions 104.417 (5.034) (109.451) dec-04 Change 04-03 % Change 04-03 times % % 0,40 0,08 0,92 0,67 0,49 0,35 0,38 0,11 0,89 2,20 1,73 1,26 (0,02) 0,03 (0,03) 1,53 1,24 0,91 (56,4%) (56,4%) (104,8%) (5,0%) 37,5% (3,3%) 228,4% 253,1% 260,0% The liquidity ratio at December 2004 was 0.95:1, a reduction of 1.23 points compared to a year before, mainly due to the reduction in accounts receivable from related companies. The debt ratio was 0.38:1, a reduction by 0.02 points compared to December 2003, mainly due to reductions in reserves and in bank borrowings. The return on equity reached 1.73%, compared to 0.49% the year before, reflecting the company’s improved results for 2004. 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 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 294 3. Principal Cash Flows The company generated a net positive cash flow in 2004 of Ch$22,642 million, composed as follows: Principal Cash Flows Flujo de Efectivo (millones de $) Operating Financing Investment Net cash flow for the year dec-03 (90,444) (128,317) 215,606 (3,155) dec-04 7,324 (93,888) 109,206 22,642 Change 04-03 % Change 04-03 97,768 34,429 (106,400) 25,797 (108.1%) (26.8%) (49.3%) (817.7%) Operating activities generated a net positive flow of Ch$7,324 million, mainly comprising increases in assets and liabilities affecting operating cash flows for Ch$22,177 million and net income for the year of Ch$44,308 million, compensated by a credit to income not representing cash flows of Ch$59,161 million. Financing activities generated a net negative flow of Ch$93,888 million, arising mainly from loan repayments of Ch$166,967 million, loans repaid to related companies of Ch$85,249 million and other financing disbursements of Ch$2,712 million, offset by loans to related companies of Ch$73,327 million, financing of Ch$75,263 and other source of financing of Ch$12,644 million. Investment activities generated a net positive cash flow of Ch$109,206 million, mainly explained by the collection of loans to related companies of Ch$206,915 million and other investment income of Ch$1,222 million, offset by documented loans to related companies of Ch$99,394 million. A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 295 II. BO O K VALU E AN D ECO N OM IC VALU E O F THE ASSE TS The following should be mentioned with respect to the more important assets: The values of the fixed assets are adjusted according to the accounting principles set by the Superintendency of Securities and insurance (SVS) in its Circulars 550 and 566 of 1985. In the case of the foreign company Inversiones Distrilima S.A., the fixed assets were adjusted according to the exception criteria contained in Technical Bulletin No.45 of the Chilean Institute of Accountants, which was in force at the time the investment was made and was not modified by Technical Bulletin No.51 that replaced it. In accordance with SVS Circular 150 of January 31, 2003, the company has evaluated at the close of the financial statements for 2002 the recoverability of assets related to its investments, applying accounting principles generally accepted in Chile (Technical Bulletin No.33 for fixed assets and NIC 36 for the hierarchy defined in Technical Bulletin No.56 for the increased or decreased values related to such investments. Assets expressed in foreign currencies are shown at the exchange rate current on the closing date. Depreciation is calculated on the restated value of the assets depending on the remaining useful lives of each asset. Investments in financial instruments under resale agreements are shown at their cost plus the proportion of the corresponding interest according to the rate implied in each transaction. Investments in related companies at shown at their equity- method value. In the case of foreign companies, the application of this method has been made on the financial statements prepared in accordance with the terms of Technical Bulletins Nos.72 and 64 of the Chilean Institute of Accountants and the intangible values are restated and amortized in accordance with Technical Bulletin No.55 of the Chilean Institute of Accountants. Accounts and notes receivable from related companies are classified according to their short or long-term maturities. The operations meet conditions of equity similar to those normally prevailing in the market. In summary, the assets are shown in accordance with generally accepted accounting principles and standards, and the respective instructions issued by the SVS, as mentioned in Note 2 to the financial statements. 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 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 296 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S A N N U A L R E P O R T 2 0 0 4 / E N E R S I S 297 F I N A N C I A L S T A T E M E N T S O F T H E S U B S I D I A R Y C O M P A N I E S 29 8 29 8 29 8 SUMMARIZED BALANCE SHEETS BY S U BSID IARY SUMMARIZED STATEMENTS OF INC OME BY SU B SIDIARY SUMMARIZED STATEMENTS OF C ASH FLOWS B Y S UBS IDIARY F I N A N C I A L S T A T E M E N T S O F T H E S U B S I D I A R Y C O M P A N I E S 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s 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 I. MANSO DE VELASCO CAM 2004 103,642,237 365,378,293 607,978,774 2003 147,585,606 337,649,976 604,536,119 2004 16,628,423 5,337,209 1,782,292 2003 22,449,354 2,834,074 14,819 2004 31,865,484 41,075,931 5,340,445 2003 44,083,897 39,225,459 6,787,199 2004 50,575,823 15,518,341 402,602 2003 45,528,804 15,150,202 ENERSIS INTERNACIONAL 2004 2003 128,082,990 202,185,409 - - 337,838 275,341,735 102,777,777 DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 38,612,783 299,896,018 4,447,473 2003 36,008,657 332,676,227 4,132,091 2004 67,952,874 615,845,170 10,014,171 2003 2004 2003 64,418,986 544,726,295 402,683,609 700,636,823 4,474,564,659 4,784,640,348 16,757,215 298,368,412 414,645,281 2004 332,427,878 733,898,792 16,231,641 2003 220,285,057 837,231,368 15,625,135 2004 2003 2004 2003 167,526,111 582,607,926 407,411,721 151,711,462 634,273,823 316,940,320 56,526,097 1,558,782,752 268,626 - 34,920 - 2004 130,662,615 550,505,055 71,102,795 2003 145,467,981 612,064,367 67,225,449 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 76,109,513 544,781,471 (1,267,798) 265,293,014 137,312,120 77,321,577 (22,550,593) 155,082,797 492,082,621 5,448,400 287,081,847 97,319,742 52,756,294 10,038,705 1,153,786 7,987 4,273,180 4,071,248 4,203,018 - - 14,103,188 714,479 3,825 4,385,507 - 6,091,248 - 1,503,196 526,429 30,203,865 26,485,905 16,556,475 3,005,990 - - 18,456,955 339,406 28,257,862 26,485,905 15,328,591 1,339,422 - (111,586) 19,009,109 4,495,083 511 2,277,062 32,102,875 8,612,126 - - 22,952,810 2,094,349 558 2,816,233 22,062,749 11,090,145 - - 6,852,522 111,714,714 1,857,007 4,991,516 - - 217,410,272 88,725,371 (8,248,250) (13,029,904) 209,389,293 135,871,139 (37,606,620) (9,539,149) 41,782,844 123,136,198 71,239,870 94,826,926 17,228,428 523,706 (5,781,698) 62,568,097 84,073,352 90,871,307 113,736,273 19,371,345 9,079,158 (6,882,557) - - - - 93,371,493 76,916,996 157,889,817 33,563,729 429,759,856 476,921,242 2,191,610,228 2,346,875,645 105,280,377 171,775,467 173,356,703 51,846,207 312,414,723 321,240,714 374,234,508 271,126,393 - - 1,127,391,301 542,714,200 592,554,861 1,310,844,523 (2,060,651) (17,129,823) 25,583,784 (27,779,167) 174,264,702 83,788,756 1,248,186,585 1,336,291,105 111,880,086 80,084,185 - - - - - - - 1,730,390 - - - - 803,208,666 (54,381,330) 56,675,131 - - 873,687,986 (44,220,494) 18,471,158 - - 657,369,077 (102,519,561) (30,959,195) - - 569,509,127 (10,701,805) (101,242,618) 106,205 16,490,806 - - 76,748 - 1,063,104,389 2,521,277,192 82,253,018 199,189,412 208,131,503 475,611,846 143,780,817 149,674,935 237,363,029 521,183,931 (974,776,703) (14,605,833) (206,421,157) (218,345,916) (27,388,798) (960,170,870) (6,494,157) (8,898,999) - - - - (4,250,370) (4,250,371) - - - - TOTAL LIABILITES AND EQUITY 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ OPERATING INCOME Operating Incomes Operating Costs Administrative and Selling Expenses NET OPERATING INCOME NON OPERATING INCOME Non Operating Incomes Non Operating Expenses Price-Level Restatement and Exchange Difference NET NON OPERATING INCOME Income Tax Extraordinary Items Minority Interests Negative Goodwill Amotizations Profit (Loss) for the Period 2004 483,006,118 (342,986,479) (42,408,032) 2003 444,803,542 (314,129,073) (35,298,554) 2004 45,447,152 (33,363,292) (6,083,735) 2003 46,415,169 (31,089,616) (6,369,117) 2004 10,354,398 (8,432,052) (2,007,697) 2003 11,616,920 (10,763,819) (1,732,943) 2004 100,424,019 (84,077,346) (7,113,464) 2003 94,011,350 (73,623,454) (6,305,180) 97,611,607 95,375,915 6,000,125 8,956,436 (85,351) (879,842) 9,233,209 14,082,716 - - - 0 - - - 0 2004 2003 2004 2003 182,362,526 180,345,166 (137,720,298) (135,622,540) (16,818,262) (17,526,542) 2004 208,982,945 (181,425,050) (27,811,175) 2003 188,540,571 (165,194,774) (28,723,783) 2004 2003 2004 2003 2004 2003 2004 2003 1,032,662,084 (629,191,426) (34,445,488) 943,288,433 (564,207,863) (32,106,900) 365,513,238 299,458,818 354,637,649 325,532,561 (273,374,753) (250,770,261) (293,145,285) (289,209,236) - - - - (7,689,382) (14,113,869) (14,600,068) (11,198,459) (711,378) (1,381,430) 2004 264,357,881 (229,673,867) (29,793,957) 2003 212,571,701 (162,021,299) (30,374,429) 27,823,966 27,196,084 (253,280) (5,377,986) 369,025,170 346,973,670 84,449,103 34,574,688 46,892,296 25,124,866 (711,378) (1,381,430) 4,890,057 20,175,973 31,683,287 (65,241,275) 5,655,022 30,623,360 (105,487,380) 8,920,003 894,587 (572,591) (126,238) 682,393 (907,427) (74,004) 4,085,869 (463,031) 152,828 4,157,921 (2,134,701) 103,931 2,257,838 (1,020,268) (488,633) 815,489 (982,019) (128,317) 14,454,972 (6,622,499) (16,080,723) 19,785,391 (1,224,070) (56,167,941) 5,950,608 (15,677,620) 5,483,891 (8,642,149) 12,993,242 (21,800,843) 13,837,544 (23,418,836) 85,443,322 79,518,140 (273,393,890) (272,767,441) - - - - 22,841,650 9,769,166 25,606,686 (22,224,319) - 12,903,274 (6,401,120) 46,588,740 21,123,634 5,369,436 72,718,762 (121,962,153) (176,042,655) (106,989) (1,032,111,663) 21,275,890 (36,618,226) 27,153,479 (56,008,122) - - (31,937,095) (52,717,238) (27,902,966) (65,944,017) 195,758 (299,038) 3,775,666 2,127,151 748,937 (294,847) (8,248,250) (37,606,620) (9,727,012) (3,158,258) (8,807,601) (9,581,292) (165,108,918) (183,480,135) 3,382,367 6,502,154 (75,373,413) (154,919,021) (26,674,648) (1,012,110,139) (15,342,336) (28,854,643) 6,592,074 - 1,020,862 - (424,039) - 10,502,181 13,246,254 (1,987,537) (2,562,534) - (5,328) - - (3,616) - (520,461) - (163,864) - 1,877 - 90,236 - (1,370,073) (2,697,648) - 53 - - (76) - - - - - - - - - (18,747,439) (10,650,679) (8,068,942) (12,819,889) (93,426,794) (28,062,535) (31,156,339) (22,605,684) (2,478,078) 28,551,537 (2,772) 53,320,699 (3,018,774) (4,753,517) - 209,141 965,050 - (5,361,554) 1,053,565 - - - - - - - - (42,802,276) 16,101,574 (71,326,105) 15,979,290 - - - - - - - - - - - - - - - - - - - - 6,976,896 4,533,188 - - 77,321,577 52,756,294 4,203,018 6,091,248 3,005,990 1,339,422 8,612,126 11,090,145 (8,248,250) (37,606,620) 523,706 9,079,158 (17,129,823) (27,779,167) 83,788,756 80,084,185 56,675,131 18,471,158 (30,959,195) (101,242,618) (27,388,798) (960,170,870) (6,494,157) (8,898,999) 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Net Positive (Negative) Cash Flow from Operating Activities Net Positive (Negative) Cash Flow from Financing Activities Net Positive (Negative) Cash Flow from Investment Activities 110,455,638 93,668,563 967,614 3,648,462 8,560,506 11,549,995 1,135,797 12,366,699 9,597,205 10,011,304 34,676,260 52,107,924 53,865,494 51,978,892 252,265,438 287,074,115 154,742,137 41,483,418 17,862,679 87,710,005 (7,650,024) 25,542,843 36,368,966 90,743,492 (116,054,800) 9,554,406 (2,020,000) (4,599,651) (17,672,407) (714,572) (3,137,928) (1,372,882) (13,026,534) (11,083,408) (33,365,359) (42,578,370) (17,854,589) (14,541,747) (110,099,198) (328,937,554) 10,380,649 3,351,200 40,109,960 (12,189,334) (1,458,173,178) 52 (19,244,251) 1,646,994 (26,773,395) (67,039,218) 762,005 899,962 9,063,106 (10,894,771) 2,514,322 (10,616,065) 1,387,077 4,490,363 (1,750,392) (9,449,822) (32,144,426) (31,324,524) (70,924,168) 114,407,462 1,513,390 (16,239,866) (46,243,063) (23,660,466) 1,462,215,720 (23,434,187) (27,394,111) (30,216,181) NET POSITIVE (NEGATIVE) CASH FLOW FOR THE PERIOD (32,372,557) 36,183,751 (290,381) (51,227) (48,795) (59,348) 512,191 377,752 (2,042,252) 3,418,259 (439,491) 79,732 3,866,479 6,112,621 71,242,072 72,544,023 166,636,176 28,594,752 11,729,576 51,860,205 (3,607,482) 2,108,708 (10,269,396) 62,174,305 Effect of inflation on cash and cash equivalent (1,084,860) (799,134) (57,731) (12,164) 2,270 (5,177) 478,274 (157,643) (189) 15,879 - - - - (9,101,852) (32,002,152) (4,286,688) (3,143,203) (1,127,018) (61,655,572) (1,523) (176,390) 7,069,111 (45,333,514) NET VARIATION OF CASH AND CASH EQUIVALENT (33,457,417) 35,384,617 (348,112) (63,391) (46,525) (64,525) 990,465 220,109 (2,042,441) 3,434,138 (439,491) 79,732 3,866,479 6,112,621 62,140,220 40,541,871 162,349,488 25,451,549 10,602,558 (9,795,367) (3,609,005) 1,932,318 (3,200,285) 16,840,791 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 42,662,737 7,278,120 2,353,351 2,416,742 77,145 131,069 1,866,703 1,646,594 3,480,297 46,159 1,048,650 968,918 18,695,560 12,582,939 167,737,846 127,195,975 55,779,721 30,328,172 3,760,983 13,556,350 3,661,486 1,729,168 25,279,045 8,438,254 FINAL BALANCE OF CASH AND CASH EQUIVALENT 9,205,320 42,662,737 2,005,239 2,353,351 30,620 66,544 2,857,168 1,866,703 1,437,856 3,480,297 609,159 1,048,650 22,562,039 18,695,560 229,878,066 167,737,846 218,129,209 55,779,721 14,363,541 3,760,983 52,481 3,661,486 22,078,760 25,279,045 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S F I N A N C I A L S T A T E M E N T S O F T H E S U B S I D I A R Y C O M P A N I E S 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s 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 I. MANSO DE VELASCO CAM 2004 103,642,237 365,378,293 607,978,774 2003 147,585,606 337,649,976 604,536,119 2004 16,628,423 5,337,209 1,782,292 2003 22,449,354 2,834,074 14,819 2004 31,865,484 41,075,931 5,340,445 2003 44,083,897 39,225,459 6,787,199 2004 50,575,823 15,518,341 402,602 2003 45,528,804 15,150,202 ENERSIS INTERNACIONAL 2004 2003 128,082,990 202,185,409 - - 337,838 275,341,735 102,777,777 DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 38,612,783 299,896,018 4,447,473 2003 36,008,657 332,676,227 4,132,091 2004 67,952,874 615,845,170 10,014,171 2003 2004 2003 64,418,986 544,726,295 402,683,609 700,636,823 4,474,564,659 4,784,640,348 16,757,215 298,368,412 414,645,281 2004 332,427,878 733,898,792 16,231,641 2003 220,285,057 837,231,368 15,625,135 2004 2003 2004 2003 167,526,111 582,607,926 407,411,721 151,711,462 634,273,823 316,940,320 56,526,097 1,558,782,752 268,626 - 34,920 - 2004 130,662,615 550,505,055 71,102,795 2003 145,467,981 612,064,367 67,225,449 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 76,109,513 544,781,471 (1,267,798) 265,293,014 137,312,120 77,321,577 (22,550,593) 155,082,797 492,082,621 5,448,400 287,081,847 97,319,742 52,756,294 10,038,705 1,153,786 7,987 4,273,180 4,071,248 4,203,018 - - 14,103,188 714,479 3,825 4,385,507 - 6,091,248 - 1,503,196 526,429 30,203,865 26,485,905 16,556,475 3,005,990 - - 18,456,955 339,406 28,257,862 26,485,905 15,328,591 1,339,422 - (111,586) 19,009,109 4,495,083 511 2,277,062 32,102,875 8,612,126 - - 22,952,810 2,094,349 558 2,816,233 22,062,749 11,090,145 - - 6,852,522 111,714,714 1,857,007 4,991,516 - - 217,410,272 88,725,371 (8,248,250) (13,029,904) 209,389,293 135,871,139 (37,606,620) (9,539,149) 41,782,844 123,136,198 71,239,870 94,826,926 17,228,428 523,706 (5,781,698) 62,568,097 84,073,352 90,871,307 113,736,273 19,371,345 9,079,158 (6,882,557) - - - - 93,371,493 76,916,996 157,889,817 33,563,729 429,759,856 476,921,242 2,191,610,228 2,346,875,645 105,280,377 171,775,467 173,356,703 51,846,207 312,414,723 321,240,714 374,234,508 271,126,393 - - 1,127,391,301 542,714,200 592,554,861 1,310,844,523 (2,060,651) (17,129,823) 25,583,784 (27,779,167) 174,264,702 83,788,756 1,248,186,585 1,336,291,105 111,880,086 80,084,185 - - - - - - - 1,730,390 - - - - 803,208,666 (54,381,330) 56,675,131 - - 873,687,986 (44,220,494) 18,471,158 - - 657,369,077 (102,519,561) (30,959,195) - - 569,509,127 (10,701,805) (101,242,618) 106,205 16,490,806 - - 76,748 - 1,063,104,389 2,521,277,192 82,253,018 199,189,412 208,131,503 475,611,846 143,780,817 149,674,935 237,363,029 521,183,931 (974,776,703) (14,605,833) (206,421,157) (218,345,916) (27,388,798) (960,170,870) (6,494,157) (8,898,999) - - - - (4,250,370) (4,250,371) - - - - TOTAL LIABILITES AND EQUITY 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ OPERATING INCOME Operating Incomes Operating Costs Administrative and Selling Expenses NET OPERATING INCOME NON OPERATING INCOME Non Operating Incomes Non Operating Expenses Price-Level Restatement and Exchange Difference NET NON OPERATING INCOME Income Tax Extraordinary Items Minority Interests Negative Goodwill Amotizations Profit (Loss) for the Period 2004 483,006,118 (342,986,479) (42,408,032) 2003 444,803,542 (314,129,073) (35,298,554) 2004 45,447,152 (33,363,292) (6,083,735) 2003 46,415,169 (31,089,616) (6,369,117) 2004 10,354,398 (8,432,052) (2,007,697) 2003 11,616,920 (10,763,819) (1,732,943) 2004 100,424,019 (84,077,346) (7,113,464) 2003 94,011,350 (73,623,454) (6,305,180) 97,611,607 95,375,915 6,000,125 8,956,436 (85,351) (879,842) 9,233,209 14,082,716 - - - 0 - - - 0 2004 2003 2004 2003 182,362,526 180,345,166 (137,720,298) (135,622,540) (16,818,262) (17,526,542) 2004 208,982,945 (181,425,050) (27,811,175) 2003 188,540,571 (165,194,774) (28,723,783) 2004 2003 2004 2003 2004 2003 2004 2003 1,032,662,084 (629,191,426) (34,445,488) 943,288,433 (564,207,863) (32,106,900) 365,513,238 299,458,818 354,637,649 325,532,561 (273,374,753) (250,770,261) (293,145,285) (289,209,236) - - - - (7,689,382) (14,113,869) (14,600,068) (11,198,459) (711,378) (1,381,430) 2004 264,357,881 (229,673,867) (29,793,957) 2003 212,571,701 (162,021,299) (30,374,429) 27,823,966 27,196,084 (253,280) (5,377,986) 369,025,170 346,973,670 84,449,103 34,574,688 46,892,296 25,124,866 (711,378) (1,381,430) 4,890,057 20,175,973 31,683,287 (65,241,275) 5,655,022 30,623,360 (105,487,380) 8,920,003 894,587 (572,591) (126,238) 682,393 (907,427) (74,004) 4,085,869 (463,031) 152,828 4,157,921 (2,134,701) 103,931 2,257,838 (1,020,268) (488,633) 815,489 (982,019) (128,317) 14,454,972 (6,622,499) (16,080,723) 19,785,391 (1,224,070) (56,167,941) 5,950,608 (15,677,620) 5,483,891 (8,642,149) 12,993,242 (21,800,843) 13,837,544 (23,418,836) 85,443,322 79,518,140 (273,393,890) (272,767,441) - - - - 22,841,650 9,769,166 25,606,686 (22,224,319) - 12,903,274 (6,401,120) 46,588,740 21,123,634 5,369,436 72,718,762 (121,962,153) (176,042,655) (106,989) (1,032,111,663) 21,275,890 (36,618,226) 27,153,479 (56,008,122) - - (31,937,095) (52,717,238) (27,902,966) (65,944,017) 195,758 (299,038) 3,775,666 2,127,151 748,937 (294,847) (8,248,250) (37,606,620) (9,727,012) (3,158,258) (8,807,601) (9,581,292) (165,108,918) (183,480,135) 3,382,367 6,502,154 (75,373,413) (154,919,021) (26,674,648) (1,012,110,139) (15,342,336) (28,854,643) 6,592,074 - 1,020,862 - (424,039) - 10,502,181 13,246,254 (1,987,537) (2,562,534) - (5,328) - - (3,616) - (520,461) - (163,864) - 1,877 - 90,236 - (1,370,073) (2,697,648) - 53 - - (76) - - - - - - - - - (18,747,439) (10,650,679) (8,068,942) (12,819,889) (93,426,794) (28,062,535) (31,156,339) (22,605,684) (2,478,078) 28,551,537 (2,772) 53,320,699 (3,018,774) (4,753,517) - 209,141 965,050 - (5,361,554) 1,053,565 - - - - - - - - (42,802,276) 16,101,574 (71,326,105) 15,979,290 - - - - - - - - - - - - - - - - - - - - 6,976,896 4,533,188 - - 77,321,577 52,756,294 4,203,018 6,091,248 3,005,990 1,339,422 8,612,126 11,090,145 (8,248,250) (37,606,620) 523,706 9,079,158 (17,129,823) (27,779,167) 83,788,756 80,084,185 56,675,131 18,471,158 (30,959,195) (101,242,618) (27,388,798) (960,170,870) (6,494,157) (8,898,999) 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Net Positive (Negative) Cash Flow from Operating Activities Net Positive (Negative) Cash Flow from Financing Activities Net Positive (Negative) Cash Flow from Investment Activities 110,455,638 93,668,563 967,614 3,648,462 8,560,506 11,549,995 1,135,797 12,366,699 9,597,205 10,011,304 34,676,260 52,107,924 53,865,494 51,978,892 252,265,438 287,074,115 154,742,137 41,483,418 17,862,679 87,710,005 (7,650,024) 25,542,843 36,368,966 90,743,492 (116,054,800) 9,554,406 (2,020,000) (4,599,651) (17,672,407) (714,572) (3,137,928) (1,372,882) (13,026,534) (11,083,408) (33,365,359) (42,578,370) (17,854,589) (14,541,747) (110,099,198) (328,937,554) 10,380,649 3,351,200 40,109,960 (12,189,334) (1,458,173,178) 52 (19,244,251) 1,646,994 (26,773,395) (67,039,218) 762,005 899,962 9,063,106 (10,894,771) 2,514,322 (10,616,065) 1,387,077 4,490,363 (1,750,392) (9,449,822) (32,144,426) (31,324,524) (70,924,168) 114,407,462 1,513,390 (16,239,866) (46,243,063) (23,660,466) 1,462,215,720 (23,434,187) (27,394,111) (30,216,181) NET POSITIVE (NEGATIVE) CASH FLOW FOR THE PERIOD (32,372,557) 36,183,751 (290,381) (51,227) (48,795) (59,348) 512,191 377,752 (2,042,252) 3,418,259 (439,491) 79,732 3,866,479 6,112,621 71,242,072 72,544,023 166,636,176 28,594,752 11,729,576 51,860,205 (3,607,482) 2,108,708 (10,269,396) 62,174,305 Effect of inflation on cash and cash equivalent (1,084,860) (799,134) (57,731) (12,164) 2,270 (5,177) 478,274 (157,643) (189) 15,879 - - - - (9,101,852) (32,002,152) (4,286,688) (3,143,203) (1,127,018) (61,655,572) (1,523) (176,390) 7,069,111 (45,333,514) NET VARIATION OF CASH AND CASH EQUIVALENT (33,457,417) 35,384,617 (348,112) (63,391) (46,525) (64,525) 990,465 220,109 (2,042,441) 3,434,138 (439,491) 79,732 3,866,479 6,112,621 62,140,220 40,541,871 162,349,488 25,451,549 10,602,558 (9,795,367) (3,609,005) 1,932,318 (3,200,285) 16,840,791 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 42,662,737 7,278,120 2,353,351 2,416,742 77,145 131,069 1,866,703 1,646,594 3,480,297 46,159 1,048,650 968,918 18,695,560 12,582,939 167,737,846 127,195,975 55,779,721 30,328,172 3,760,983 13,556,350 3,661,486 1,729,168 25,279,045 8,438,254 FINAL BALANCE OF CASH AND CASH EQUIVALENT 9,205,320 42,662,737 2,005,239 2,353,351 30,620 66,544 2,857,168 1,866,703 1,437,856 3,480,297 609,159 1,048,650 22,562,039 18,695,560 229,878,066 167,737,846 218,129,209 55,779,721 14,363,541 3,760,983 52,481 3,661,486 22,078,760 25,279,045 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S F I N A N C I A L S T A T E M E N T S O F T H E S U B S I D I A R Y C O M P A N I E S 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s 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 I. MANSO DE VELASCO CAM 2004 103,642,237 365,378,293 607,978,774 2003 147,585,606 337,649,976 604,536,119 2004 16,628,423 5,337,209 1,782,292 2003 22,449,354 2,834,074 14,819 2004 31,865,484 41,075,931 5,340,445 2003 44,083,897 39,225,459 6,787,199 2004 50,575,823 15,518,341 402,602 2003 45,528,804 15,150,202 ENERSIS INTERNACIONAL 2004 2003 128,082,990 202,185,409 - - 337,838 275,341,735 102,777,777 DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 38,612,783 299,896,018 4,447,473 2003 36,008,657 332,676,227 4,132,091 2004 67,952,874 615,845,170 10,014,171 2003 2004 2003 64,418,986 544,726,295 402,683,609 700,636,823 4,474,564,659 4,784,640,348 16,757,215 298,368,412 414,645,281 2004 332,427,878 733,898,792 16,231,641 2003 220,285,057 837,231,368 15,625,135 2004 2003 2004 2003 167,526,111 582,607,926 407,411,721 151,711,462 634,273,823 316,940,320 56,526,097 1,558,782,752 268,626 - 34,920 - 2004 130,662,615 550,505,055 71,102,795 2003 145,467,981 612,064,367 67,225,449 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 76,109,513 544,781,471 (1,267,798) 265,293,014 137,312,120 77,321,577 (22,550,593) 155,082,797 492,082,621 5,448,400 287,081,847 97,319,742 52,756,294 10,038,705 1,153,786 7,987 4,273,180 4,071,248 4,203,018 - - 14,103,188 714,479 3,825 4,385,507 - 6,091,248 - 1,503,196 526,429 30,203,865 26,485,905 16,556,475 3,005,990 - - 18,456,955 339,406 28,257,862 26,485,905 15,328,591 1,339,422 - (111,586) 19,009,109 4,495,083 511 2,277,062 32,102,875 8,612,126 - - 22,952,810 2,094,349 558 2,816,233 22,062,749 11,090,145 - - 6,852,522 111,714,714 1,857,007 4,991,516 - - 217,410,272 88,725,371 (8,248,250) (13,029,904) 209,389,293 135,871,139 (37,606,620) (9,539,149) 41,782,844 123,136,198 71,239,870 94,826,926 17,228,428 523,706 (5,781,698) 62,568,097 84,073,352 90,871,307 113,736,273 19,371,345 9,079,158 (6,882,557) - - - - 93,371,493 76,916,996 157,889,817 33,563,729 429,759,856 476,921,242 2,191,610,228 2,346,875,645 105,280,377 171,775,467 173,356,703 51,846,207 312,414,723 321,240,714 374,234,508 271,126,393 - - 1,127,391,301 542,714,200 592,554,861 1,310,844,523 (2,060,651) (17,129,823) 25,583,784 (27,779,167) 174,264,702 83,788,756 1,248,186,585 1,336,291,105 111,880,086 80,084,185 - - - - - - - 1,730,390 - - - - 803,208,666 (54,381,330) 56,675,131 - - 873,687,986 (44,220,494) 18,471,158 - - 657,369,077 (102,519,561) (30,959,195) - - 569,509,127 (10,701,805) (101,242,618) 106,205 16,490,806 - - 76,748 - 1,063,104,389 2,521,277,192 82,253,018 199,189,412 208,131,503 475,611,846 143,780,817 149,674,935 237,363,029 521,183,931 (974,776,703) (14,605,833) (206,421,157) (218,345,916) (27,388,798) (960,170,870) (6,494,157) (8,898,999) - - - - (4,250,370) (4,250,371) - - - - TOTAL LIABILITES AND EQUITY 1,076,999,304 1,089,771,701 23,747,924 25,298,247 78,281,860 90,096,555 66,496,766 61,016,844 403,424,725 304,963,186 342,956,274 372,816,975 693,812,215 781,813,024 5,317,659,366 5,601,969,238 1,082,558,311 1,073,141,560 1,157,545,758 1,102,925,605 56,794,723 1,558,817,672 752,270,465 824,757,797 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ OPERATING INCOME Operating Incomes Operating Costs Administrative and Selling Expenses NET OPERATING INCOME NON OPERATING INCOME Non Operating Incomes Non Operating Expenses Price-Level Restatement and Exchange Difference NET NON OPERATING INCOME Income Tax Extraordinary Items Minority Interests Negative Goodwill Amotizations Profit (Loss) for the Period 2004 483,006,118 (342,986,479) (42,408,032) 2003 444,803,542 (314,129,073) (35,298,554) 2004 45,447,152 (33,363,292) (6,083,735) 2003 46,415,169 (31,089,616) (6,369,117) 2004 10,354,398 (8,432,052) (2,007,697) 2003 11,616,920 (10,763,819) (1,732,943) 2004 100,424,019 (84,077,346) (7,113,464) 2003 94,011,350 (73,623,454) (6,305,180) 97,611,607 95,375,915 6,000,125 8,956,436 (85,351) (879,842) 9,233,209 14,082,716 - - - 0 - - - 0 2004 2003 2004 2003 182,362,526 180,345,166 (137,720,298) (135,622,540) (16,818,262) (17,526,542) 2004 208,982,945 (181,425,050) (27,811,175) 2003 188,540,571 (165,194,774) (28,723,783) 2004 2003 2004 2003 2004 2003 2004 2003 1,032,662,084 (629,191,426) (34,445,488) 943,288,433 (564,207,863) (32,106,900) 365,513,238 299,458,818 354,637,649 325,532,561 (273,374,753) (250,770,261) (293,145,285) (289,209,236) - - - - (7,689,382) (14,113,869) (14,600,068) (11,198,459) (711,378) (1,381,430) 2004 264,357,881 (229,673,867) (29,793,957) 2003 212,571,701 (162,021,299) (30,374,429) 27,823,966 27,196,084 (253,280) (5,377,986) 369,025,170 346,973,670 84,449,103 34,574,688 46,892,296 25,124,866 (711,378) (1,381,430) 4,890,057 20,175,973 31,683,287 (65,241,275) 5,655,022 30,623,360 (105,487,380) 8,920,003 894,587 (572,591) (126,238) 682,393 (907,427) (74,004) 4,085,869 (463,031) 152,828 4,157,921 (2,134,701) 103,931 2,257,838 (1,020,268) (488,633) 815,489 (982,019) (128,317) 14,454,972 (6,622,499) (16,080,723) 19,785,391 (1,224,070) (56,167,941) 5,950,608 (15,677,620) 5,483,891 (8,642,149) 12,993,242 (21,800,843) 13,837,544 (23,418,836) 85,443,322 79,518,140 (273,393,890) (272,767,441) - - - - 22,841,650 9,769,166 25,606,686 (22,224,319) - 12,903,274 (6,401,120) 46,588,740 21,123,634 5,369,436 72,718,762 (121,962,153) (176,042,655) (106,989) (1,032,111,663) 21,275,890 (36,618,226) 27,153,479 (56,008,122) - - (31,937,095) (52,717,238) (27,902,966) (65,944,017) 195,758 (299,038) 3,775,666 2,127,151 748,937 (294,847) (8,248,250) (37,606,620) (9,727,012) (3,158,258) (8,807,601) (9,581,292) (165,108,918) (183,480,135) 3,382,367 6,502,154 (75,373,413) (154,919,021) (26,674,648) (1,012,110,139) (15,342,336) (28,854,643) 6,592,074 - 1,020,862 - (424,039) - 10,502,181 13,246,254 (1,987,537) (2,562,534) - (5,328) - - (3,616) - (520,461) - (163,864) - 1,877 - 90,236 - (1,370,073) (2,697,648) - 53 - - (76) - - - - - - - - - (18,747,439) (10,650,679) (8,068,942) (12,819,889) (93,426,794) (28,062,535) (31,156,339) (22,605,684) (2,478,078) 28,551,537 (2,772) 53,320,699 (3,018,774) (4,753,517) - 209,141 965,050 - (5,361,554) 1,053,565 - - - - - - - - (42,802,276) 16,101,574 (71,326,105) 15,979,290 - - - - - - - - - - - - - - - - - - - - 6,976,896 4,533,188 - - 77,321,577 52,756,294 4,203,018 6,091,248 3,005,990 1,339,422 8,612,126 11,090,145 (8,248,250) (37,606,620) 523,706 9,079,158 (17,129,823) (27,779,167) 83,788,756 80,084,185 56,675,131 18,471,158 (30,959,195) (101,242,618) (27,388,798) (960,170,870) (6,494,157) (8,898,999) 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 A s o f D e c e m b e r 31, 2 0 0 4 a n d 2 0 0 3 i n t h o u s a n d s o f C h i l e a n P e s o s CHILECTRA SYNAPSIS I. MANSO DE VELASCO CAM ENERSIS INTERNACIONAL DISTRILIMA EDESUR ENDESA CHILE CODENSA CERJ ELESUR INVESTLUZ 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Net Positive (Negative) Cash Flow from Operating Activities Net Positive (Negative) Cash Flow from Financing Activities Net Positive (Negative) Cash Flow from Investment Activities 110,455,638 93,668,563 967,614 3,648,462 8,560,506 11,549,995 1,135,797 12,366,699 9,597,205 10,011,304 34,676,260 52,107,924 53,865,494 51,978,892 252,265,438 287,074,115 154,742,137 41,483,418 17,862,679 87,710,005 (7,650,024) 25,542,843 36,368,966 90,743,492 (116,054,800) 9,554,406 (2,020,000) (4,599,651) (17,672,407) (714,572) (3,137,928) (1,372,882) (13,026,534) (11,083,408) (33,365,359) (42,578,370) (17,854,589) (14,541,747) (110,099,198) (328,937,554) 10,380,649 3,351,200 40,109,960 (12,189,334) (1,458,173,178) 52 (19,244,251) 1,646,994 (26,773,395) (67,039,218) 762,005 899,962 9,063,106 (10,894,771) 2,514,322 (10,616,065) 1,387,077 4,490,363 (1,750,392) (9,449,822) (32,144,426) (31,324,524) (70,924,168) 114,407,462 1,513,390 (16,239,866) (46,243,063) (23,660,466) 1,462,215,720 (23,434,187) (27,394,111) (30,216,181) NET POSITIVE (NEGATIVE) CASH FLOW FOR THE PERIOD (32,372,557) 36,183,751 (290,381) (51,227) (48,795) (59,348) 512,191 377,752 (2,042,252) 3,418,259 (439,491) 79,732 3,866,479 6,112,621 71,242,072 72,544,023 166,636,176 28,594,752 11,729,576 51,860,205 (3,607,482) 2,108,708 (10,269,396) 62,174,305 Effect of inflation on cash and cash equivalent (1,084,860) (799,134) (57,731) (12,164) 2,270 (5,177) 478,274 (157,643) (189) 15,879 - - - - (9,101,852) (32,002,152) (4,286,688) (3,143,203) (1,127,018) (61,655,572) (1,523) (176,390) 7,069,111 (45,333,514) NET VARIATION OF CASH AND CASH EQUIVALENT (33,457,417) 35,384,617 (348,112) (63,391) (46,525) (64,525) 990,465 220,109 (2,042,441) 3,434,138 (439,491) 79,732 3,866,479 6,112,621 62,140,220 40,541,871 162,349,488 25,451,549 10,602,558 (9,795,367) (3,609,005) 1,932,318 (3,200,285) 16,840,791 INITIAL BALANCE OF CASH AND CASH EQUIVALENT 42,662,737 7,278,120 2,353,351 2,416,742 77,145 131,069 1,866,703 1,646,594 3,480,297 46,159 1,048,650 968,918 18,695,560 12,582,939 167,737,846 127,195,975 55,779,721 30,328,172 3,760,983 13,556,350 3,661,486 1,729,168 25,279,045 8,438,254 FINAL BALANCE OF CASH AND CASH EQUIVALENT 9,205,320 42,662,737 2,005,239 2,353,351 30,620 66,544 2,857,168 1,866,703 1,437,856 3,480,297 609,159 1,048,650 22,562,039 18,695,560 229,878,066 167,737,846 218,129,209 55,779,721 14,363,541 3,760,983 52,481 3,661,486 22,078,760 25,279,045 A N N U A L R E P O R T 2 0 0 4 / E N E R S I S F I N A N C I A L S T A T E M E N T S O F T H E S U B S I D I A R Y C O M P A N I E S 2 0 0 4 A N N U A L R E P O R T / E N E R S I S 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) 816 6852 SANTANDER CENTRAL HISPANO INVESTMENT Enrique Romero Phone (34-91) 342 9681 S I S R E N E / T R O P E R L A U N N A 4 0 0 2 Santa Rosa 76, Santiago - Chile (56 2) 353 4400, (56 2) 378 4400 Fax: (56 2) 378 4788 w w w. e n e r s i s . c l 

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