Professional Documents
Culture Documents
Operating Performance
Distribution Total energy consumption in Light SESAs concession area (captive customers + transport of free customers 1) came to 5,144 GWh in 3Q10, a 3.1% year-on-year increase, largely driven by the substantial upturn in free market consumption due to overall economic growth besides the migration of captive-market clients to the free market. In the first nine months, total energy
4,383 -0.1% 4,379 Electric Energy Consum ption (GWh )
Total Market ( Captive + Free)
3Q10
consumption came to 16,728 GWh, 6.0% higher which recorded respective growth of 22.2% and 4.0%.
than in the same period of 2009, fueled by both the free and captive markets,
If the consumption of the free clients CSN, Valesul and CSA is taken into account, total billed consumption came to 5,751 GWh in 3Q10 and 18,207 GWh in 9M10.
To preserve comparability with the market approved by Aneel in the tariff adjustment process, the billed energy of free consumers Valesul, CSN and CSA was excluded, in view of these customers planned migration to the core network. Energy consumption by these clients totaled 607 GWh in 3Q10 and 411 GWh in 3Q09.
Captive Market Captive market billed consumption in 3Q10 remained flat over 3Q09, due to the 0.9% upturn in the residential segment and the 3.4% increase by the other category (government, public services and rural), offset by the 9.6% decline in industrial consumption. The average temperature in the third quarter of 2010 was -0.6C below the average for the same period in 2009. Despite that, there was increase in residential
Residential 0.9% -0.1% 1,761 1,778 3.4% -9.6% 458 414 Commercial 3Q09 3Q10 1,388 1,386 776 802 Electric Energy Consumption (GWh) Captive Market -0.1% 4,383 4,379
Industrial
Others
T otal
consumption, that is still impacted by the improved economic conditions in Lights concession area, in turn reflecting higher income, the expanded client base and easier access to home appliances, while the decline in industrial consumption reflects the migration of captive-market clients to the free market between the two periods. Residential consumption accounted for 40.6% of the captive market in 3Q10. The number of billed residential clients grew by 0.9%, totaling 3.74 million in September 2010, with an average monthly consumption of 158.7 kWh, compared to 159.9 kWh in the same period last year. The commercial segment, which consumed 1,386 GWh, represented 31.7% of captive market consumption in 3Q10, virtually flat over 3Q09. The performance of this segment was also affected by migrations to the free market between the two periods; if these were excluded, commercial consumption growth would have come to 3.2%. Industrial clients, who made up 9.4% of the captive market, consumed 414 GWh, 9.6% down on 3Q09, also mainly due to interim migrations to the free market. Excluding these, growth came to 9.9%, underlining the industrial segments recovery. One client with average monthly consumption of 2 GWh in the period migrated to the free market. The other categories, which accounted for 18.3% of the captive market, posted growth of 3.4% in relation to 3Q09. The rural, government and public service categories, which represented 0.3%, 7.4% and 6.2% of the captive market, respectively, all recorded positive performances.
Year-to-date captive market consumption totaled 14,564 GWh, 4.0% higher than in 9M09, mainly due to the excellent performance of the residential segment, which recorded year-on-year growth of 6.9%, followed by the commercial segment, with growth of 3.3%. Despite lower temperature, which was 0.3C below the same period last year, consumption growth is once again underlining economic growth in Lights concession area.
Network Usage
Electric Energy Transportation - GWh Free Customers + Concessionaires 10.3% 1,510 1,369 25.9% -2.2%
Billed energy transported to free customers 3 and concessionaires totaled 1,510 GWh in 3Q10, 10.3% up year-on-year. The substantial 25.9% upturn in billed energy transported to free clients can be explained by the recovery in the activities of major industrial consumers and the migrations of captive-market clients to the free
764 607
762
746
Free
Conc essionaires
3Q09 3Q10
Total
billed energy transported to free clients would have increased by 2.2%. The flow of energy to concessionaires bordering Lights area fell by 2.2% between the periods due to dispatch by the National Electric System Operator (ONS). In 9M10, network usage totaled 4,509 GWh, 22.1% up year-on-year.
To preserve comparability with the market approved by Aneel in the tariff adjustment process, the billed energy of free consumers Valesul, CSN and CSA was excluded, in view of these customers planned migration to the core network. Energy consumption by these clients totaled 607 GWh in 3Q10 and 411 GWh in 3Q09.
Residential 6,185.5 Billed Energy 14,564.0 Industrial 1,286.0 Commercial 4,593.2 Losses + Non Billed Energy 5,421.7 Basic netw. losses Adjustment 377.2 (3.0) Others 2,499.3
En e rgy B alan ce (G W h ) = G rid Lo ad - En ergy transpo rted to u tilities - En ergy transpo rted to free cu stom ers* = O w n Load - Ca ptive m arket co nsu m ptio n Lo w Voltage M arket M ediu m Vo lta ge M a rk et - Losses + N o n Billed E nergy
*Inclu ding C SN , Valesul a nd C SA
3Q10 3Q 09 V ar.% 9M 10 9M 09 V a r.% 8 ,2 1 6 7 ,8 81 4 .3% 2 6 ,0 48 2 4 ,2 3 7 7 .5% 746 762 -2 .2 % 2 ,3 4 5 1 ,9 2 1 2 2 .1 % 1 ,3 9 0 1 ,0 54 3 2 .0 % 3 ,7 1 7 3 ,0 3 3 2 2 .5 % 6 ,0 7 9 6 ,0 65 0 .2% 1 9 ,9 86 1 9 ,2 8 3 3 .6% 4 ,3 7 9 4 ,3 83 -0 .1 % 1 4 ,5 64 1 4 ,0 0 4 4 .0% 2 ,7 9 1 2 ,7 37 1 .9% 9 ,4 4 6 8 ,8 8 6 6 .3% 1 ,5 8 9 1 ,6 45 -3 .4 % 5 ,1 1 8 5 ,1 1 8 0 .0% 1 ,7 0 0 1 ,6 82 1 .1% 5 ,4 2 2 5 ,2 7 9 2 .7%
Energy Losses Light SESAs total energy losses amounted to GWh, or 21.48% of the grid load, in the 12 ended September 2010, 22 bps down on the of-June ratio. As of November 2009, non-technical losses began to be disclosed for billed energy in the low-voltage market in compliance with the
21.50% 15.22% 7,005 Light Losses Evolution 12 mont hs 21.82% 15.40% 7,269 21.98% 15.56% 7,504 21.70% 15.39% 7,549 21.48% 15.18% 7,544
Sep- 09
Dec - 09
Mar- 10
Jun-10
Sep-10
change mandated by ANEEL in its definitive tariff adjustment approved October, 2009. This change is more in line with the concessionaires operations since it is precisely in the low-voltage market where nontechnical losses are found. Following losses, this which methodology, non-technical
Non tecnical losses / Low Voltage market 12 months 42.3% 4,958 42.5% 5,149 42.7% 5,313 42.4% 5,352 42.1% 5,330 Sep- 10
totaled 5,330 GWh in the 12 months through September 2010, representing 42.1% of the low-voltage market (15.18% of the grid load), fell by 3 bps over the losses in 2Q10.
Sep-09
Dec - 09
Mar-10
Jun-10
Conventional energy recovery processes, such as the negotiation of amounts owed by customers where fraud has been detected, resulted in the recovery of 125.5 GWh in 9M10, 11.5% higher than in the same period last year. In the same period, fraud regularization year. Conventional energy recovery initiatives
9M 09 9M 10 R e c o v e re d En e r g y (G W )
programs
yielded
total
of
11.5%
112.5
125.5
catch up following the delays in the loss prevention program caused by outages during the summer. In addition to conventional actions, there was further progress in regard to new technologies, with the reinstallation of electronic meters certified by Inmetro. By the close of September, nearly 35,000 meters had been reinstalled, with
67,220 Nor m a liz e d Co s t u m e r s
65,553
billing through remote electronic metering. In terms of network protection, nearly 75,000 clients were covered by September, the target being to surpass 100,000 by year-end.
9M 09
-2.5%
9M 10
Collection The 3Q10 collection rate stood at 99.2% of the billed total, 50 bps down on 3Q09, but still very
Colletion rate R$ MM Billing Collection Collection Tax 3Q10 1,944 1,929 99.2% 3Q09 1,797 1,792 99.7% 9M10 6,359 6,276 98.7% 9M09 5,960 5,830 97.8%
close to the 100% mark. It is worth noting that collection in the retail segment increased from 93.8% in 3Q09 to 95.9% in 3Q10. Major and government clients continued to record collection rates of more than 100%. The collection rate for the past 12 months was total billed consumption, 80 bps above September 2009 and 10 bps below June 2010.
93.8% 95.9% Collection Rate per S egment
(Q ua rte r)
104.4% 100.1%
111.9% 109.9%
98.0%
La rge Cu s to me rs
3Q 09 3Q10
of
Re ta il
P ublic Se cto r
In 3Q10, Provisions for Past Due Accounts (PPD) totaled R$66.7 million, representing 3.8% of gross billed energy. Given that, according to the sectors provisioning criteria, provisions related to past due bills of residential and commercial clients are constituted 90 and 180 days after the due date, respectively, this result can be explained by the following factors: (i) the reduction in the number of in the of disconnections of the due to the (ii)
sep/09 dec/10 mar/10 jun/10 sep/10 97.2% 97.3% Collection rate 12 months moving average 98.5% 98.1% 98.0%
replacement delays
outsourced execution
companies,
causing
services;
substantial billed energy in the previous quarter, which impacted the provisioning of higher bills in 3Q10; (iii) higher billed energy growth in the retail segment, which has a lower collection rate.
3.4%
P ro vision s for Past D ue A ccounts R $ M illion 3Q 10 3Q 09 V ar 9M 10 9 M 0 9 V ar PD D 66.7 57.9 15.1% 20 5.5 184.3 11.5%
3Q09
2Q10
3Q10
Operating Quality Ensuring high levels of quality in the supply of electricity is an essential part of establishing good relations between the distribution company and its clients. The problems it faced last summer led Light to further intensify its distribution improvement investment plan. In 9M10, the Company invested R$146.0 million in efforts to improve the quality of its electricity supply business and to increase the capacity of its distribution network, 46.2% more than the R$99.8 million invested in the same period last year. Among these improvements, it is particularly worth drawing attention to the replacement of 309 km of conventional cable with space cable (medium and low-voltage compact network), versus only 126 km in 3Q09. At the end of September, the equivalent length of interruption indicator (DEC), expressed in hours, registered 11.82 hours for the last 12 months, while the equivalent frequency of interruption indicator (FEC), expressed in occurrences, stood at 6.27 times. The adverse weather conditions through September 2010 jeopardized the performance of the electricity system, with heavy rainfall and higher-than-normal summer temperatures resulting in strong load growth. In addition, the renewal of agreements with outsourced maintenance and emergency service providers, which took place in 3Q10, caused delays in these procedures, negatively impacting network performance. Most of the outages occurred in areas served by underground networks, which are more complex and therefore take longer to repair, thereby increasing the DEC. Preventive maintenance procedures for the underground system are currently under way, with intensified inspections of transformer vaults and manholes, as well as the installation of tele-supervision in 400 underground transformer vaults, 50 of which were so-equipped by September. In addition, the Leblon and Copacabana underground systems are being expanded and improved, absorbing investments of around R$4 million. Conclusion is scheduled for December 2010.
ELC EFC
sep/10* 7.06 5.75 6.27 sep/09
8.96
11.50 11.82
sep/08
ELC Equivalent Length of Interruption per Consumption Unit (hs) EFC Equivalent Frequency of Interruption per Consumption Unit (n.)
*Does not consider the effects of 11/10/2009 occurrence in the national interconected system.
Generation Energy sold on the captive market (ACR) totaled 1,035.8 GWh in 3Q10, in line with the 3Q09 figure, while energy sold on the free market (ACL) amounted to 154.3 GWh, up by 30.0%. The 89.8% year-on-year reduction in spot market sales volume in 3Q10 was primarily caused by two factors: (i) the reduction in hydroelectric generation in the National Interconnected System, which generated less secondary energy for settlement in the CCEE; and (ii) the upturn in energy sales on the free market. In 9M10 sales totaled 4,322.3 GWh, 17.2% up year-on-year, driven by the increase in first-half spot market sales, due to the higher hydroelectric generation in the National Interconnected System, which generated more secondary energy for settlement in the CCEE, and to CCEEs booking procedures, which failed to deduct
LIGHT ENERGIA (GWh) Regulated Contracting Environment Sales Free Contracting Environment Sales Spot Sales (CCEE) Total 3Q10 1,035.8 154.3 10.7 1,200.8 3Q09 1,035.1 118.7 105.4 1,259.2 % 0.1% 30.0% -89.8% -4.6% 9M10 3,087.5 342.9 891.8 4,322.3 9M09 3,088.3 325.0 276.2 % 0.0% 5.5% 222.9%
3,689.5 17.2%
Commercialization and Services In 3Q10, direct energy sales totaled 399.6 GWh, 176.5% up on 3Q09, reflecting the quarters new long and short-term operations. The sales contract portfolio was also expanded to include new companies, e.g. Schincariol and TRW. Commercialization activity involved a total of 97 clients, versus 51 in 3Q09. In addition to direct sales, Light Esco also continued to provide consulting services and represent free customers before the CCEE (broker). These activities involved 9 clients and operations totaling 736.2 GWh in 3Q10, 167.6% more than in the same period last year. Light Escos 13 ongoing service contracts included two new projects this quarter: (i) the implementation of a cooling system for the 1a Igreja Batista de Trindade; and (ii) adjustments to Santa Casa de Misericrdia de Barra Mansas medium-voltage network and metering system.
In 9M10, Light Esco traded 2,982.1 GWh, 146.9% up year-on-year, thanks to its increased availability of energy for resale and the expansion of the sales contract portfolio, with the addition of Owens Illinois, BR Metais, MD Papis, Schincariol and TRW.
Volume (GWh)
3Q10
3Q09
Var.%
3M10
3M09
Var.%
176.5% 825.8 396.6 108.2% 167.6% 2,156.3 811.0 165.9% 170.7% 2,982.1 1,207.6 146.9%
Financial Performance
STATEMENT OF CONSOLIDATED INCOME 3Q09 NET OPERATING REVENUE OPERATING EXPENSE Personnel Material Outsourced Services Purchased Energy Depreciation Provisions Others Construction Cost OPERATING RESULT() FINANCIAL RESULT Financial Income Financial Expenses Other Operating Incomes/Expenses RESULT BEFORE TAXES AND INTEREST SOCIAL CONTRIBUTIONS & INCOME TAX NET INCOME EBITDA 1,441,612 (1,238,690) (60,592) (4,607) (65,399) (774,557) (85,966) (67,022) (25,339) (155,208) 202,922 (51,400) 42,255 (93,655) 6,131 3Q10 1,553,902 (1,255,128) (64,769) (8,892) (87,975) (821,977) (89,144) (21,794) (26,003) (134,574) 298,774 (58,909) 43,281 (102,190) 1,284 % 7.8% 1.3% 6.9% 93.0% 34.5% 6.1% 3.7% -67.5% 2.6% -13.3% 47.2% 14.6% 2.4% 9.1% -
157,653
241,149
53.0%
Net Revenue Net revenue totaled R$ 1,553.9 million in 3Q10, 7.8% above 3Q09, mainly due to the positive performance of distribution, generation and commercialization segments, respectively. This increase resulted from: (i) growth in the total energy
consumption (free and captive markets), which rose 3.1%, in the distribution segment; (ii) increase in energy sold on the free market and adjustment of energy sales contracts in the generation segment; (iii) and trading sales volume increase in 176.5%, in the commercialization segment. Costs and Expenses In 3Q10, the costs and expenses increase in 1.3%,compared to 3Q09, driven mainly by increase in energy purchased and outsourced services cost in 6.1% and 34.5%. Those increases were partially offset by decrease in provisions cost in 67.5%, between the periods, which represented R$ 22.6 million. EBITDA EBITDA totaled R$ 387.9 million in 3Q10, 34.3% above 3Q09. This result can be explained by increase of net revenue in 7.8%, despite of increase of costs and operating expenses in 1.3%. The EBITDA margin was 27.3% compare to 22.5% in 3Q09. Net Income Light posted a net income of R$ 161.0 million in 3Q10, 127.4% above 3Q09, due to the combination of 34.3% increase in EBITDA and the lower payment of IR / CSSL in 7.7%, despite of decrease in R$ 7.5 million in the financial result. Capital Expenditures The Company invested R$437.0 million in 9M10, R$181.5 million of which in the development of distribution and transmission networks (new connections, capacity increases and repairs); R$54.4 electronic million in quality and improvements and preventive Generation maintenance efforts; and R$75.6 million in network protection, meters fraud regularization.
9M 09 9M10
D is t r ib u t ioAnd m in is t r a t io e n e r a t ioCno m m e r c ia l Gn
C A P E X (R $ M M )
23 .9 % 4 3 7 .0 1 .0 35 2 .82.3 2 0 .8 2 9 .4 30 0 .2 77 .5 2 2.7
3 35.8
investments totaled R$77.5 million, R$60.0 million of which refers to the new generation projects and R$45.9 million of this to the Paracambi SHP project. In 2010 Light intends to invest R$706 million to be allocated as follows: R$513 million to distribution, R$117 million to generation (R$84 million of which to new projects) and R$76 million to administration and other businesses. Generation Capacity Expansion Projects 3Q10 was marked by the following events related to projects for expanding Lights generating capacity:
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well under way. Currently, the dykes channel is being excavated and the spillway basin is being strengthened, both of which are on schedule. The signing of a BNDES financing contract is expected in the first quarter of 2011. The Construction of New Feeder 1, part of the Lajes SHP water channeling
system, is under way and scheduled for completion in the first quarter of 2011. The basic engineering project of the Itaocara hydroelectric project is
currently being analyzed by ANEEL, and IBAMA has set up a special team to examine the projects environmental impacts (EIA-RIMA), which is essential for the Company to move ahead with the environmental licensing process, which includes the holding of public hearings and the subsequent issue of preliminary and installation licenses, conditions that must be met before the project can be implemented; The two wind energy projects acquired at the beginning of the year, located
in Aracati (CE) and with total installed capacity of 31 MW, participated in the Reserve and Alternative Sources energy auctions held last August. The projects did not advance to the second round of the auctions due to the low prevailing prices. In addition to these projects, the Company is considering participating in
several other generation undertakings, aiming to increase its installed generating capacity.
Corporate Governance and the Capital Markets On September 30, 2010, the capital stock of Light S.A. comprised 203,934,060 common shares with no par value.
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The following chart represents Lights shareholding structure on the same date:
BNDESPAR
MINORITRIOS EDFI
13,03%
20,02 %
27,85%
100%
LIGHT Servios de Eletricidade S.A
100%
LIGHT Energia S.A.
100%
LIGHT ESCO Prestao de Servios S.A.
51%
LIGHTGER S.A.
100%
ITAOCARA Energia Ltda
100%
LIGHTCOM Comercializ. de Energia S.A.
100%
LIGHTHIDRO Ltda
100%
INSTITUTO LIGHT
51%
AXXIOM Solues Tecnolgicas S.A.
On October 7, 2010, ENLIGHTED PARTNERS VENTURE CAPITAL LLC (ENLIGHTED) exercised the put option that is the object of the Option Agreement for the Sale of Shares and other Covenants (Option) entered into on March 24, 2010 between CEMIG and ENLIGHTED,, selling its shares in LUCE INVESTMENT FUND (LUCE Fund) to Companhia Energtica de Minas Gerais CEMIG (CEMIG) or any third party appointed thereby. LUCE Fund holds seventy-five percent (75%) of LUCE BRASIL FUNDO DE INVESTIMENTO EM PARTICIPAES (LUCE), which in turn indirectly holds, through Luce Empreendimentos e Participaes S.A. (LEPSA), 13.03% of the Companys total and voting capital. On October 8, 2010, ENLIGHTED formalized its intention of beginning negotiations with CEMIG, aiming at the maintenance of its interest in LUCE.
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The exercise of the Option does not alter the validity of the shareholders agreement in force, entered into on December 30, 2009, and control of the Company will continue to be shared with Andrade Gutierrez Concesses S.A.,
BOVESPA (spot market) - LIGT3 Daily Average Number of shares traded (Thousand) Number of Transactions Traded Volume (R$ Million) Quotation per shares: (Closing)* Share Valuing (Quarter) IEE Valuing (Quarter) Ibovespa Valuing (Quarter) *Ajusted by earnings
3Q10 2Q10 3Q09 871.7 689.1 1,123.8 1,856 1,521 1,587 R$ 19.0 R$ 15.0 R$ 27.7 R$ 21.60 R$ 19.46 R$ 20.68 11.0% -12.7% -8.3% 5.9% -0.6% 9.3% 13.9% -13.4% 19.5%
holder of 0.53% of its total and voting capital; RME Rio Minas Energia Participaes S.A., holder of 13.03% of its total and voting capital; CEMIG, holder of 25.53% of its total and voting capital; and LEPSA, holder of 13.03% of its total and voting capital.
Disclaimer
The information on the Companys operations and its Managements expectations regarding its future performance has not been revised by independent auditors. Forward-looking statements are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our Management and on information currently available to the Company. Statements about future events include information about our intentions, beliefs or current expectations, as well as those of the Company's Board of Directors and Officers. Reservations related to statements and information about the future also include information about operating results, likely or presumed, as well as statements that are preceded by, followed by, or including words such as "believes," "might," "will," "continues," "expects," "estimates," "intends," "anticipates," or similar expressions. Statements and information about the future are not a guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events, thus depending on circumstances that may or may not occur. Future results and creation of value to shareholders might significantly differ from those expressed or suggested by forward-looking statements. Many of the factors that will determine these results and values are beyond LIGHT S.A.'s control or forecast capacity.
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APPENDIX I
Light by Numbers
OPERATING INDICATORS N of Consumers (thousand) N of Employees Average provision tariff - R$/MWh Average provision tariff - R$/MWh (w/out taxes) Average energy purchase cost - R$/MWh Installed generation capacity (MW) Assured energy (average MW) Pumping and internal losses (average MW) Available energy (average MW) Net Generation (GWh) Load Factor Includes purchase on spot 3Q10 4,046 3,707 404.3 277.9 99.4 855 637 87 550 1,105 64.3% 3Q09 4,011 3,699 406.7 281.7 106.9 855 637 100 537 1,146 66.2% Var. % 0.9% 0.2% -0.6% -1.3% -7.0% -13.0% 2.4% -3.5% -
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1. We have reviewed the accounting information included in the individual Quarterly Information - ITR
of Light S.A. (The Company), comprising the balance sheet and statements of operations, of changes in shareholders equity and of cash flows and the consolidated Quarterly Information of this Company and its subsidiaries, comprising the consolidated balance sheet and the consolidated statements of operations, of changes in shareholders equity and of cash flows, both referring to the quarter ended September 30, 2010, which includes the explanatory notes and the performance report, which are the responsibility of its management.
2. Our review was performed in accordance with the review standards established by IBRACON - The
Brazilian Institute of Independent Auditors and the Federal Accounting Council - CFC, which comprised, mainly: (a) inquiry and discussion with the management responsible for the accounting, financial and operational areas of the Company and its subsidiaries, regarding the main criteria adopted in the preparation of the Quarterly Information; and (b) review of the information and subsequent events, which have, or may have, a material effect on the financial and operational position of the Company and its subsidiaries.
3. Based on our review, we are not aware of any material change that should be made to the accounting
information contained in the individual Quarterly Information of Light S.A. referred to above, for them to be in accordance with accounting rules adopted in Brazil, notably the technical pronouncement CPC 21 - Interim Financial Reporting and rules issued by the Brazilian Securities and Exchange Commission - CVM applicable to the preparation of the Quarterly Information.
4. Based on our review we are not aware of any material change that should be made to the accounting
information contained in the consolidated Quarterly Information of Light S.A. and its subsidiaries referred to above, for them to be in accordance with the International Financial Reporting Standards IFRS, notably the standard IAS 34 - Interim Financial Reporting, issued by International Accounting Standards Board (IASB), and rules issued by the Brazilian Securities and Exchange Commission CVM, applicable to the preparation of the Quarterly Information.
5. As mentioned in explanatory note 2, during the year 2009, CVM approved several Pronouncements,
Interpretations and Technical Orientations issued by the Accounting Pronouncements Committee CPC which are effective for 2010, and changed the accounting practices adopted in Brazil. These changes were adopted by the Company and its subsidiaries in the preparation of the individual Quarterly Information of the Company for the quarter ended September 30, 2010 and disclosed in explanatory note 2. The individual Quarterly Information are being restated and, therefore, are different from those originally stated by the Company, including our review report, dated November 10, 2010. The individual Quarterly Information related to the year and period of 2009, presented for comparison purposes, were adjusted to include the changes in accounting practices adopted in Brazil in force for 2010.
6. As mentioned in explanatory note 2, the Company and its subsidiaries started to present from 2010
on, consolidated Quarterly Information in accordance with International Financial Reporting Standards - IFRS, notably the standard IAS 34 - Interim Financial Reporting, issued by the IASB. The consolidated Quarterly Information of the Company and its subsidiaries related to the year and period ended 2009, prepared in accordance with the mentioned International Accounting Standards, are being presented for comparison purposes.
7. Our review was performed to issue a report on the review of the accounting information included in the individual Quarterly Information of this Company as mentioned in the first paragraph, taken as a whole. The individual and consolidated Statements of Value Added (DVA), required by Brazilian corporate law, are not required by the International Accounting Standards issued by the IASB and are being presented for purposes of additional analysis. This supplementary information has been submitted to the same review procedures applied to the accounting information included in the Quarterly Information of the Company, and based on our review, we are not aware of any material changes that should be made for it to be in accordance with the accounting information included in the Quarterly Information mentioned in the first paragraph, taken as a whole.
Rio de Janeiro, May 13, 2011
LIGHT S.A.
BALANCE SHEET (In thousands of reais)
Notes ASSETS Cash and cash equivalents Marketable Securities Consumers, concessionaires and permissionaires Taxes and contributions Inventories Receivables from swap transactions Dividends receivable Receivables from services provided Prepaid expenses Other receivables TOTAL CURRENT ASSETS Consumers, concessionaires and permissionaires Taxes and contributions Deferred taxes Concession financial assets Escrow deposits Prepaid expenses Other receivables Investments Property, plant and equipment Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS 7 8 9 10 5 6 7 8 33
Parent Company 09/30/2010 12/31/2009 425.605 931 62 25 2.064 428.687 194 3.348.904 736 3.349.834 3.778.521 14.584 774 155.701 175 20.212 191.446 152 3.513.147 678 3.513.977 3.705.423
Consolidated 09/30/2010 12/31/2009 838.580 11.083 1.227.372 319.338 19.401 82.769 2.716 124.466 2.625.725 275.799 57.908 961.106 384.903 216.875 829 7.865 22.710 1.607.269 3.558.935 7.094.199 9.719.924 760.313 68.059 1.355.854 442.668 14.369 4 46.015 2.381 97.250 2.786.913 297.798 40.767 1.115.546 354.784 200.520 1.658 8.725 20.388 1.600.568 3.422.980 7.063.734 9.850.647
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11 12 13 14
LIGHT S.A.
BALANCE SHEETS
Notes LIABILITIES Suppliers Taxes and contributions Loans, financing and financial charges Debentures and financial charges Dividends payable Estimated liabilities Sector charges - Consumer contributions Contingencies Post-employment benefits Other liabilities TOTAL CURRENT LIABILITIES Loans, financing and financial charges Debentures and financial charges Taxes and contributions Deferred taxes Contingencies Post-employment benefits Debts with related parties Other liabilities TOTAL NON-CURRENT LIABILITIES SHAREHOLDERS' EQUITY Capital stock Capital reserves Recognized granted options Treasury shares Profits Reserve Legal reserve Profit retention Proposed additional dividends Equity valuation adjustments Retained earnings/accumulated losses TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 16 17 9 19 20 21
15 9 16 17 24 18 19 20 21
499.982 281.250 177.008 398.290 363.002 56.017 122.856 93.640 214.907 2.206.952 1.119.547 818.552 175.823 328.444 576.279 869.468 211.775 4.099.888
564.181 285.180 197.150 96.412 143.647 52.374 110.791 95.044 236.028 1.780.807 1.006.204 1.165.759 303.585 301.230 669.353 861.386 208.695 4.516.212
23 2.225.822 133.999 151.988 500.227 401.048 3.413.084 3.778.521 2.225.822 34.406 (6.361) 133.999 499.188 288.693 518.761 (140.880) 3.553.628 3.705.423 2.225.822 133.999 151.988 500.227 401.048 3.413.084 9.719.924 2.225.822 34.406 (6.361) 133.999 499.188 288.693 518.761 (140.880) 3.553.628 9.850.647
LIGHT S.A. INCOME STATEMENT FOR THE THE PERIODS ENDED SEPTEMBER 30
Notas NET OPERATING REVENUE OPERATING COSTS GROSS PROFIT OPERATING EXPENSES Sales expenses General and administrative expenses Other Incomes/Expenses OPERATING INCOME FINANCIAL INCOME Revenues Expenses EQUITY IN THE EARNINGS OF SUBSIDIARIES INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION Current income tax and social contribution taxes Deferred income tax and social contribution taxes 8 8 30 26 28 28
Parent Company 01/01/2010 to 07/01/2009 to 09/30/2010 09/30/2009 (5.430) (5.430) (5.430) 903 952 (49) 527.921 (11.401) (11.401) (11.401) (101) 74 (175) 82.286
07/01/2010 to 09/30/2010 1.553.902 (1.129.898) 424.004 (123.946) (91.249) (33.981) 1.284 300.058 (58.909) 43.281 (102.190) -
Consolidated 01/01/2010 to 07/01/2009 to 09/30/2010 09/30/2009 4.775.487 (3.334.815) 1.440.672 (446.129) (276.261) (181.747) 11.879 994.543 (188.949) 139.447 (328.396) 1.441.612 (1.083.902) 357.710 (148.657) (77.634) (77.154) 6.131 209.053 (51.400) 42.255 (93.655) -
01/01/2009 to 09/30/2009 4.567.576 (3.388.532) 1.179.044 (470.456) (241.217) (238.267) 9.028 708.588 (75.471) 121.782 (197.253) -
160.963 -
523.394 -
70.784 -
311.330 -
160.963
523.394
70.784
311.330
160.963
523.394
70.784
311.330
LIGHT - S.A. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY PERIODS ENDED SEPTEMBER 30 ( In thousands of reais) PROFIT RESERVES PROPOSED ADDITIONAL ADIVIDENDS 288.693 (288.693) EQUITY VALUATION ADJUSTMENTS 518.761 (18.534) 500.227 RETAINED EARNINGS / (ACCUMULATED) LOSSES (140.880) 18.534 523.394 401.048
BALANCE ON 12/31/09 Realization of equity valuation adjustment Loss absorption adjustment to 1st time adoption of IFRS Recognized granted options Derecognition of treasury shares Transfer of unexercised options Treasury shares Dividends paid - profits reserve Payment of additional proposed dividends Additional proposed dividends Net Income in fiscal year Allocation of net income for the year: Legal reserve Proposed dividends Additional proposed dividends Profit retention reserve BALANCE ON 9/30/10 The notes are an integral part of the financial statements.
LIGHT - S.A. CASH FLOW STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30 ( In thousands of reais ) Parent company 01/01/2010 to 09/30/2010 01/01/2009 to 09/30/2009
Cash flow tax operating activities
Income before income tax and social contribution
160.963
311.330
Adjustments of expenses (revenues) not affecting cash Allowance for doubtful accounts Depreciation and amortization Amortization of intangible assets Loss (gain) from the sale of intangible assets / Residual value of derecognized property, plant and equipment Exchange losses (gains) from financial activities Restatement of contingencies Adjustment of receivables to present value Interest expenses on loans Charges and monetary variation on post-employment liabilities Provision for / (Reversal of ) liabilities - contingencies Options granted (Increase)/reduction in Assets Securities Consumers, concessionaires and permissionaires Dividends received Taxes and contributions Inventories Services Prepaid expenses Escrow deposits Other Increase/(reduction) in liabilities Suppliers Estimated liabilities Taxes and contributions Sector charges - Consumer Contributions Contingencies Post-employment benefits Other liabilities Interests paid Income and social contribution taxes paid Net cash from operating activities Cash flow from investment activities Share acquisition Receivables related to shares Receivables from the sale of property, plant and equipment Receivables from the sale of financial asset / investment Capital increase - mergers Acquisition of property, plant and equipment Acquisition of intangible assets Consumer contributions Acquisition of financial assets (concession) Additions to/acquisition of investment Shareholding Net cash used in investment activities Cash flow from financing activities Dividends and interest on equity paid Loans and financing Amortization of loans and financing Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at close of the period Changes in cash and cash equivalents
(344.441) 30.206 407.868 (395) 113 (31) (6) (169) 181 33 159 404.848
205.459 262.858 (9.322) (8.262) 29.778 5.488 194.253 75.841 (44.334) 56.976 (60.466) 92.055 (5.032) (36.754) 494 (16.355) (43.332)
184.643 257.722 (9.322) (54.665) 37.967 (16.074) 202.767 42.765 34.821 30.208 (6.802) (154.664) 257.749 3.246 (9.042) 260 642 54.644
(64.199) 3.642 (104.478) 12.065 (78.518) (69.163) (20.487) (141.267) (113.626) 928.908
(32.617) 207 (171.791) (8.582) (56.039) (69.901) (42.508) (151.256) (98.146) 859.349
TABLE OF CONTENTS
1. OPERATIONS 2. PRESENTATION OF THE QUARTERLY FINANCIAL INFORMATION 3. INITIAL ADOPTION OF IFRS 4. SUMMARY OF ACCOUNTING PRACTICES CASH AND CASH EQUIVALENTS MARKETABLE SECURITIES 5. CONSUMERS, CONCESSIONAIRES AND PERMISSIONAIRES (CLIENTS) 6. TAXES AND CONTRIBUTIONS 7. DEFERRED TAXES 8. CONCESSION FINANCIAL ASSETS 9. OTHER RECEIVABLES 10. INVESTMENTS 11. PROPERTY, PLANT AND EQUIPMENT 12. INTANGIBLE ASSETS 13. SUPPLIERS 14. LOANS, FINANCING AND FINANCIAL CHARGES 15. DEBENTURES AND FINANCIAL CHARGES 16. REGULATORY CHARGES 17. CONTINGENCIES 18. POST-EMPLOYMENT BENEFITS 19. OTHER PAYABLES 20. RELATED-PARTY TRANSACTIONS 21. SHAREHOLDERS EQUITY 22. DIVIDENDS 23. EARNINGS PER SHARE 24. NET OPERATING REVENUE BREAKDOWN 25. ELECTRIC POWER SUPPLY 26. OPERATING COSTS AND EXPENSES 27. ELECTRIC POWER PURCHASED FOR RESALE 28. FINANCIAL INCOME 29. FINANCIAL INSTRUMENTS 30. INSURANCE 31. SEGMENT REPORTING 32. LONG-TERM INCENTIVE PLAN 33. STATEMENT OF VALUE ADDED 34. SUBSEQUENT EVENTS
OPERATIONS Light S.A. is a publicly-held company, organized and domiciled in Rio de Janeiro, Brazil. Its headquarters are located at Avenida Marechal Floriano, Rio de Janeiro. The corporate purpose of Light S.A. (Company) is to hold equity interests in other companies, as partner or shareholder, and is involved in the direct or indirect exploitation, as applicable, of electric power services, including electric power generation, transmission, sale and distribution systems, as well as other related services. The Company is listed in the New Market (Novo Mercado) of the So Paulo Stock Exchange (BM&F Bovespa under LIGT3). Light S.A. is a parent company of the following companies: Light Servios de Eletricidade S.A. (Light SESA) - Publicly-held corporation engaged in the distribution of electric power; Light Energia S.A. - (Light Energia) Closely-held corporation whose main activity is to study, plan, construct, operate and exploit systems of electric power generation, transmission and sales, and related services; Light Energia has corporate interest in the following subsidiaries: o Central Elica So Judas Tadeu Ltda. company in the pre-operating stage, whose main activity is to produce and trade electricity through the Wind Plant located in the state of Cear, with a nominal power of 18 MW. o Central Elica Fontainha Ltda. company in the pre-operating stage, whose main activity is to produce and trade electricity through the Wind Plant located in the state of Cear, with a nominal power of 16 MW Light Esco Prestao de Servios S.A. - (Light Esco) A closely-held company whose purpose is purchase, sale, import, export and advisory services in the energy sector. Lightcom Comercializadora de Energia S.A. (Lightcom) A closely-held company whose purpose is the purchase, sale, import, export and advisory services in the energy sector. Itaocara Energia Ltda. - (Itaocara Energia) Company in the pre-operating stage, primarily engaged in the preparation of projects, construction, installation, operation and exploration of plants to generate electrical power. Light Solues em Eletricidade Ltda. former Lighthidro Ltda. (Light Hidro) now has the new corporate name in accordance with new articles of association dated January 27, 2011 and its main purpose to provide services to low voltage clients, including assembly, restoration and maintenance in general. Instituto Light para o Desenvolvimento Urbano e Social (Light Institute) Nonprofit private entity is engaged in participating in social and cultural projects, with interest in
the cities economic and social development, affirming the Companys ability to be socially responsible. Light S.A. is the parent company of the following joint ventures: Lightger S.A. (Light Ger) - Company in the pre-operating stage for participation in auctions for concession, authorization and permission for new plants. On December 24, 2008, Light Ger obtained the installation license that authorizes the start of implementation works of Paracambi small hydroelectric power plant (PCH). Jointlyowned subsidiary of Light S.A. (51%) and Companhia Energtica de Minas Gerais CEMIG (49%). Axxiom Solues Tecnolgicas S.A. (Axxiom) Privately-held company, whose purpose is providing technological solutions and operational management systems to public concessionaires, including electricity, gas, water and sewage companies and other utility companies. Jointly-controlled by Light S.A. (51%) and Companhia Energtica de Minas Gerais CEMIG (49%). Grupo Lights concessions and authorizations:
Concessions / Authorizations Generation, transmission and distribution PCH Paracambi Itaocara Hydroelectric Power Plant Date of Concession / Authorization Jul/1111 Feb/1111 Mar/1111 Maturity Date Jun/1111 Feb/2222 Mar/1111
PRESENTATION OF THE QUARTERLY FINANCIAL INFORMATION Consolidated Quarterly Financial Information The consolidated financial quarterly information was prepared according to the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and also according to accounting practices adopted in Brazil (BR GAAP). Individual Quarterly Financial Information The individual quarterly financial information is presented according to the accounting practices adopted in Brazil, in compliance with the provisions of the Corporation Law, and comprise the changes introduced by Laws no. 11,638/07 and 11,941/09, complemented by new pronouncements, interpretations and guidance from CPC, issued in 2009 and 2010, approved by CFC Resolutions, and in accordance with CVM rules. The Company did not calculate comprehensive income, which is the reason why it is not presenting the Comprehensive Income Statement.
Quarterly Financial Information 2010 and Financial Statements 2009 Until December 31st, 2009, the Company presented its individual and consolidated financial statements according to the accounting standards adopted in Brazil, which comprised the changes introduced by the Laws no. 11,638/07 and 11,941/09 (Provisional Measure n 449/2008 - MP no. 449/2008), complemented by the pronouncements of the Accounting Pronouncements Committee CPC, approved by resolutions of the Federal Accounting Council CFC and rules of the Securities Commission CVM until December 31, 2008. As established in the CVM Deliberation no. 609/2009 (CPC 37 Initial Adoption of International Accounting Standards), the international Standards were retroactively implemented at January 1st, 2009. Therefore, the financial statements and quarterly financial information originally disclosed were adjusted and are presented according to the international accounting Standards and practices adopted in Brazil. The authorization to conclude this quarterly financial information was given by the Companys Management at May 13, 2011. Basis of measurement The financial statements were prepared based at historical cost, except for the financial instruments measured by fair value through the income statement; defined benefit actuarial asset, which is recognized as the net total of plan assets, adding the unrecognized past service cost and unrecognized actuarial losses, deducing the unrecognized actuarial gains and the present value of the defined benefit liability; and fixed assets of the generation plants, measured at fair value as attributable cost. Functional currency and presentation currency This individual and consolidated Quarterly Financial Information is stated in Brazilian Reais, which is the Companys functional currency. All financial information presented in Brazilian Reais was rounded to the nearest thousand, except when otherwise indicated. Use of estimates and judgment The preparation of the financial statements according to the IFRS and CPC standards demand the Management to make certain judgments, estimates and premises that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. Estimates and premises are continuously reviewed. Reviews regarding accounting estimates are recognized in the period when the estimates are effectively reviewed and in any affected future periods. Information about premises and estimates that may result in adjustments within the next financial year are included in the following Notes:
Note 09 Deferred Taxes Note 19 Contingencies Note 20 Post Employment Benefits Note 26 Net Operating Revenue Breakkdown Consolidated Group The consolidated financial statements include those of Light S.A., its direct subsidiaries and joint ventures, listed as follows:
Interest (%) 2010
Light Servios de Eletricidade S.A. Light Energia S.A Light Esco Prestao de Servios S.A. Lightcom Comercializadora de Energia S.A Light Hidro Ltda. Instituto Light para o Desenvolvimento Urbano e Social Itaocara Energia Ltda. Lightger S.A. Axxiom Solues Tecnolgicas S.A.
INITIAL ADOPTION OF IFRS The approval of the Laws no. 11,638/07 and 11,941/09 started for publicly-held companies the process of converging with international accounting standards, through issuance, by CPC, and approval by Brazilian accounting regulating bodies, of several accounting pronouncements, interpretations and guidelines, in two steps: the first step, developed and applied in 2008, with the adoption of the technical pronouncements CPC 00 to 14 (the latter revoked since 2010) and the second step, with issuance, in 2009, of the technical pronouncements CPC 15 to 43 (except for CPC 34), with mandatory adoption in 2010, with retroactive effects to 2009 for comparability purposes. The Company published on March 31, 2011, the individual and consolidated financial statements referring to December 31, 2010, which include a detailed description of exemptions adopted and exceptions used, the opening balance sheet on January 1, 2009, the closing balance sheet on December 31, 2009 and the income statement for the year ended December 31, 2009. Said individual financial statements also include effects on income and shareholders equity of the quarters ended on 3/31/2009, 6/30/2009, 9/30/2009, 3/31/2010, 6/30/2010 and 9/30/2010 resulting from full adoption of the rules of 2010. In compliance with CVM Deliberation no. 656, of January 25th, 2011, the Company presents below the effects in the income statement and in shareholders equity, in the quarters ended in 9/30/2009 and 9/30/2010, arising from full adoption of the 2010 standards.
Parent Company 9/30/2010 Shareholders Equity Balance before the adoption of the new practices Adjustments and reclassifications: Pre-operational expenses Investment Regulatory assets and liabilities Fair value as deemed cost Equity method Deferred income tax and social contribution Deferred taxes Other adjustments 2.861.911 9/30/2009 Shareholders Equity 3.191.030 9/30/2010 Shareholders Equity 2.861.911
SUMMARY OF ACCOUNTING PRACTICES The accounting policies applied are in compliance with policies described in our financial statements in BR GAAP for the year ended December 31, 2010 and have been applied consistently to all periods presented in these financial statements. Several IFRS rules, amendments to rules and interpretations issued by IASB are not yet in force in the year ended in January 1st, 2010, such as: Improvements to IFRS 2010. IFRS 9 Financial Instruments. Prepayment of a minimum fund requirement (Amendment to IFRIC 14). Amendments to IAS 32 Classification of rights issues.
CPC did not issued yet pronouncements equivalent to the IFRSs mentioned above, but there are expectations that it does before the required date to become in force. Anticipated adoption of IFRSs pronouncements is conditioned to previous approval in normative act by CVM Brazilian Securities and Exchange Commission. Since it did not adopt these standards in anticipation, the Company has not yet appraised the potential effects of them in its financial statements. CASH AND CASH EQUIVALENTS
Parent Coompany 09/30/2010 12/31/2009 Cash Financial investments of immediate liquidity Certificate of deposit (CDB) Total 65 425.540 425.605 2.557 12.027 14.584 Consolidated 09/30/2010 12/31/2009 16.627 821.953 838.580 27.139 733.174 760.313
Financial investments are represented by transactions purchased from organizations trading in the domestic financial market, at arm-length's terms and rates. These investments are highly liquid, have a daily repurchase commitment by the counterparty financial institution (the repurchase rate is previously agreed upon by the parties), involve low credit exposures, and yield according to the variation of the interbank
deposit rate (CDI), without any loss in the earnings if early redeemed. MARKETABLE SECURITIES These papers involve bank deposit certificates (CDB) in the amount of R$11,033 (R$68,059 on December 31, 2009) forming the underlying assets of certain surety bonds pledged in power auctions, and also other proceeds from the sale of assets that were held for re-investment in the electric grid system or have maturities of 3 months or longer.
Sales within the scope of CCEE Supply and charges related to the use of electric network
297,798 297,798
a) The balances of debt repayment facilities were adjusted to their present value, as applicable, pursuant to Law No. 11,638/07. The present value is determined for each relevant consumer debt renegotiation (debt repayment facilities) based on such interest rate as will reflect the term and risk associated with each individual transaction, on average 1% per month. Accounts receivable includes the installment agreements present value, including options of early payment of installments, which if they are exercised ensure payment discounts to clients. In September 2010, option was exercised generating financial expenses amounting to R$16,216. In 2011, options are expected to be exercised at the approximate amount of R$21,007. b) In the third quarter of 2010, bad debts of R$1,456 (R$14,133 in 2009) were writtenoff. An allowance for doubtful accounts was set up based on certain premises and in an amount deemed sufficient to meet any asset realization losses, in accordance with the ANEEL guidelines summarized as follows:
Customers with significant debts (large accounts): - Outstanding balances of customer accounts are reviewed on a case-by-case basis and per consumer class. In all other instances: - Residential consumers over 90 days past due. - Commercial consumers over 180 days past due. - Industrial, rural, government, public lighting, utility, and other accounts over 360 days past due. Overdue and falling due balances related to electric power billed sales and debt payment by installments are distributed as follows:
Billed sales and renegotiated debts Residential Industrial Commercial Rural Public sector Public lighting Public utility Total - current and non-current Maturing balance 191,195 25,466 123,891 634 33,196 12,976 229,268 616,625 Matured Balances Overdue up to Overdue over 90 days 90 days 140,985 12,848 40,686 258 13,858 2,511 793 211,940 764,820 158,795 297,417 601 116,386 32,031 11,107 1,381,157 TOTAL 09/30/2010 1,097,000 197,110 461,994 1,493 163,439 47,518 241,168 2,209,722 12/31/2009 1,053,757 216,120 377,087 1,437 160,921 41,045 279,019 2,129,386 Allowance for bad debts 09/30/2010 (750,401) (39,683) (222,947) (460) (4,731) (1,611) (547) (1,020,380) 12/31/2009 (616,265) (28,986) (167,098) (388) (4,300) (808) (6) (817,851)
Consolidated Assets Liabilities 09/30/2010 12/31/2009 09/30/2010 12/31/2009 CURRENT Tax credits IRPJ and CSLL (a) IRRF (Withholding Income Tax) recoverable IRRF (Withholding Income Tax) payable ICMS recoverable ICMS payable Installment Payments - Law 11,941/09 (b) PIS/COFINS recoverable (d) PIS/COFINS payable Prepaid IRPJ/CSLL Provision for IRPJ/CSLL Other TOTAL NON-CURRENT Installment Payment - Law 11,941/09 (b) ICMS recoverable (d) TOTAL 44,070 120,545 10,644 127,323 16,756 319,338 102,073 11,522 109,704 6,634 181,364 31,371 442,668 416 30,161 20,767 48,106 172,699 9,101 281,250 2 5,561 21,684 57,420 188,835 11,678 285,180
57,908 57,908
40,767 40,767
175,823 175,823
303,585 303,585
)a The balance refers to negative balance tax credits recoverable arising from withholdings of cash investments and government agencies in the amount of R$7,456 and prepaid Income Tax and Social Contribution credits for 2009 amounting to R$36,614. The variation of the amounts for the quarter is obtained by the adjustment based on the SELIC rate in the amount of R$21,566, including new credits in the amount of R$152,995, net of offsets in the year, amounting to R$232,564. )b New REFIS (Tax Recovery Program) - (Law 11,941/09) Light has been making monthly minimum payments of one hundred reais as provided for by laws, plus payment of installments deriving from migration of PAES (Special Installment Payment Program) - Social Security (REFIS II), in the quarterly consolidated amount of R$1,752 and updating the balance of the installments by SELIC rate, in the amount of R$4,085. Therefore, Light is awaiting the service of process from the Brazilian Federal Revenue Office in order to consolidate REFIS, since documents necessary have been delivered. )c Recoverable PIS (Social Contribution Tax on Gross Revenue for Social Integration Program) and COFINS (Social Contribution Tax on Gross Revenue for Social Security Financing) balance refers to contributions retained by public authorities and services rendering. )d The amount of the state VAT (ICMS) recovery on September 30, 2010 includes R$7,934 (R$34,675 on December 31, 2009) of credits deriving from the renegotiations of the CEDAE debt in July and December 2006.
DEFERRED TAXES
Consolidated 09/30/2010 12/31/2009 Deferred Deferred Tax Base tax Tax Base tax
ASSETS Income Tax Tax Losses Temporary Differences Social Contribution Negative Base Temporary Differences Total
900,853 1,913,014
225,213 478,252
1,385,458 1,917,214
346,365 479,304
949,661 1,913,014
1,303,657 1,917,214
Consolidated 09/30/2010 12/31/2009 Deferred Deferred Tax Base tax Tax Base tax
966,013
241,503
885,972
221,493
966,013
86,941
885,972
79,737
Total
328,444
301,230
The recording of tax credits includes the recoverable amount in up to 10 years, as provided for by CVM Rule 371/02 and in the assumptions of that credit cannot be barred, and it is based on a feasibility study approved by the Board of Directors, which shows the balance recovery in up to 4 years.
Reconciliation of effective and nominal rates of the provision for income and social contribution taxes:
Consolidated 09/30/2010 09/30/2009 805,594 633,117 34% 34% (273,902) (215,260) (13,984) (7,070) 32,509 (91,335) (26,890) (1,540) (9,787) 1,524 1,592 83 73 (282,200) (321,787) (171,514) (110,686) (282,200) (182,746) (139,041) (321,787)
Earnings before Income and Social Contribution Taxes (LAIR) Combined income and social contribution tax rate Income and social contribution taxes at statutory rates Income and social contribution tax effect on permanent additions and exclusions Income and social contribution tax effect on equity in the earnings of subsidiaries Effect of offshore income and social contribution taxation Deferred tax credits not recognized CVM 371/02 - Light S.A. Tax incentives Others Income and social contribution tax on income Current income tax and social contribution on income Deferred income tax and social contribution on income
CONCESSION FINANCIAL ASSETS Owing to its utility nature, distribution of electric power is governed by certain Utility Concession Agreements and any subsequent amendments thereto, entered into by the Union (Granting Authority - Grantor) and our subsidiary Light Servios de Eletricidade S.A. (Operator). These agreements generally contain provisions governing matters such as follows: Which services the Operator must provide and to whom (i.e. consumer classes) such services must be provided. These concession agreements contain a service level clause or provisions establishing performance standards applicable to utility services, usually addressing quality maintenance and improvement in connection with any services provided to the public. Additionally, the Operator is required, upon
expiration of the concession, to return infrastructure assets in the same operating conditions as they were handed over when the agreement was executed. In order to satisfy and meet these obligations, investments are made on an ongoing basis over the term of the concession. Therefore, some assets associated with the concession contract may be replaced a number of times before the concession expires. Once the concession expires, infrastructure assets are "reverted" (i.e. returned) to the granting authority upon payment of certain compensation. Concession prices are fixed through a rate methodology set forth in each concession agreement that is based on a parametric formula (Portions A and B), and includes a review mechanism to ensure that the restated/escalated rates will be sufficient to cover any costs, repay investments made and provide return on the capital invested. Based on the features of the electric power distribution agreement of the subsidiary, management is of the opinion that the requirements for application of Accounting Interpretation ICPC 01 - Concession Contracts, which interpretation provides guidelines addressing how to account for concession of utility services to private operators, have been successfully met in order to reflect the electric power distribution business, comprising: a) An estimated portion of any investments made and not repaid or amortized before the concession expires, net of special obligations classified as financial assets due to their nature as an unqualified right to receive cash or any other financial asset directly from the granting authority. b) A portion remaining after the financial asset was determined, net of any special obligations classified as intangible assets because recovery of the same is contingent upon the utility service being used. The infrastructure handed over or built in connection with the power distribution business, originally represented by power, plant and equipment and other intangible asset items of the subsidiary, is recovered through two distinct cash flows, as follows: a) a portion of the infrastructure is recovered through selling power distribution services to consumers (monthly billing of power consumed/sold) during the term of the concession; and b) another portion is recovered by way of the compensation payable for revertible assets upon expiration of the concession, which compensation will be paid directly by the Granting Authority or any of its agents. Management estimates that the compensation payable for the financial assets will be made based on the not yet amortized portions of investments in revertible concession infrastructure assets, determined at the cost of acquisition/construction, made for the
purpose of ensuring stable, continuously improved provision of utility services, net of any special obligations. This compensation has been determined at transition date. Below is a summary of transactions related to the balances of revertible assets (concession assets):
Balance as of December 31, 2009 Additions Write-offs Balance as of September 30, 2010 354,784 30,213 (94) 384,903
OTHER RECEIVABLES
Parent Company 09/30/2010 12/31/2009 CURRENT Advances to suppliers and employees Property rental Receivables of assets disposal Public lighting fee Expenditures to refund Subsidy to low-income segment (a) Other amounts receivable - ILP Other Total NON-CURRENT Assets and rights for disposal Other Total 24 2,040 2,064 31 18,634 1,547 20,212 Consolidated 09/30/2010 12/31/2009 37,612 228 42,940 14,685 16,279 12,722 124,466 20,395 425 25,119 10,779 15,256 18,634 6,642 97,250
INVESTMENTS
Parent Company 09/30/2010 12/31/2009 Accounted for under the equity method: Light SESA Light Energia S.A. Light Esco Prestao de Servios S.A. Lightger S.A. (a) LightCom Itaocara Energia (a) Axxiom Solues Tecnolgicas S.A. Light Solues em Eletricidade Ltda (a) Subtotal Goodwill from future profitability Other permanent investments SubTotal Total 2,446,526 808,002 38,740 34,850 2,242 14,388 2,071 50 3,346,869 2,035 2,035 3,348,904 2,699,254 747,962 27,825 25,772 11,115 50 3,511,978 1,169 1,169 3,513,147 17,586 17,586 17,586 20,388 20,388 20,388 Consolidated 09/30/2010 12/31/2009
09/30/2010 Light SESA Light Energia Light Esco LightCom Light Solues Instituto Light Itaocara Energia Light Ger Axxiom S.A.
P a id -u p c a p ita l 2 ,0 8 2 ,3 6 5 7 7 ,4 2 2 7 ,5 8 4 50 300 1 7 ,2 9 4 2 3 ,7 9 1
S h a r e h o ld e r s ' e q u ity 2 ,6 9 9 , 2 5 4 7 4 7 ,9 6 2 2 7 ,8 2 5 50 1 1 ,1 1 5 2 5 ,7 7 2
D iv id e n d s r e c e iv a b le (1 2 5 ,5 1 0 ) ( 2 6 ,8 3 3 ) ( 3 ,3 5 8 ) -
D iv id e n d s A d d itio n a l D iv id e nI d s o m e f o r nc r e c e iv e d P a id th e y e a r ( 4 8 1 ,5 6 4 ) ( 1 8 ,0 7 4 ) (1 6 9 ,7 2 9 ) 5 4 1 ,5 8 9 8 4 ,7 6 3 1 4 ,1 4 1 (6 1 7 ) 4 ,4 0 6
T o ta l A s s e ts 8 , 4 1 9 ,9 3 2 1 , 6 1 6 ,0 1 0 5 8 ,7 5 3 69 2 1 2 9 ,5 3 0 3 2 ,9 0 5
On August 3, 2010, Light S.A.s Board of Directors approved to sell 49% common, registered shares of Lightger to Companhia Energtica de Minas Gerais CEMIG, corresponding to 25,939,013 shares, in the amount of R$28,851, referring to the shareholders equity recorded in the Financial Statements drawn up on March 31, 2010.
Historical cost Generation Transmission Distribution Administration Sales In service Generation Administration In progress Total 2,656,827 57,601 47,416 253,220 9,785 3,024,849 154,982 103,238 258,220 3,283,069
The statement below summarizes the changes in property, plant and equipment:
Consolidated Balance as of 12/31/2009 PROPERTY, PLANT AND EQUIPMENT IN SERVICE Cost Land Reservoir, dams and water mains Buildings, works and improvements Machinery and equipment Vehicles Fixtures and furnishings Total Property, Plant and Equipment in Service - Cost (-) Depreciation Reservoir, dams and water mains Buildings, works and improvements Machinery and equipment Vehicles Fixtures and furnishings Total Property, Plant and Equipment in Service - Depreciation PROPERTY, PLANT AND EQUIPMENT IN PROGRESS Reservoir, dams and water mains Buildings, works and improvements Machinery and equipment Vehicles Fixtures and furnishings Studies and frojects Total Property, Plant and Equipment in Progress TOTAL PROPERTY, PLANT AND EQUIPMENT 43,416 29,866 81,300 7,497 14,530 16,692 193,301 1,600,568 13,164 10,742 24,668 2,191 896 13,731 65,392 7,622 (473) (473) (921) 56,580 40,608 105,968 9,688 15,426 29,950 258,220 1,607,269 105,803 1,247,913 271,021 1,240,560 32,497 127,130 3,024,924 2,474 22 591 3,087 (1,331) (1,320) (71) (440) (3,162) 105,803 1,246,582 273,495 1,239,262 32,426 127,281 3,024,849 Additions Write offs Inter-account transfers Balance as of 09/30/2010
(i) Subsidiary Light SESA does not hold any Union-owned resources and rights in its assets. INTANGIBLE ASSETS
Consolidated 09/30/2010 Accumulated amortization (3,198,563) (360,110) (3,558,673) (3,558,673) 12/31/2009 Net Value 2,601,057 55,143 2,656,200 815,040 87,695 902,735 3,558,935 Net Value 2,667,560 77,070 2,744,630 489,639 188,711 678,350 3,422,980
Historic cost Intangible Concession right of use Other In Use Concession right of use Other In progress TOTAL INTANGIBLE (1) 5,799,620 415,253 6,214,873 815,040 87,695 902,735 7,117,608
(1) Net of special obligations comprising (i) contributions made by the Union, states, municipalities and consumers, (ii) any unqualified donations (i.e. not subject to any consideration in benefit of the donor), and allowances intended as investments to be made toward concession of the electric power distribution utility.
A total amount of R$7,557 (R$41,295 in 2009) was carried over to intangible assets in the third quarter of 2010 by way of interest capitalization and as a contra-entry to the financial income. The infrastructure used by subsidiary Light SESA is associated with the distribution service, and therefore cannot be removed, disposed of, assigned, conveyed, or encumbered as mortgage collateral without the prior written authorization of the Granting Authority, which authorization, if given, is regulated by Resolution ANEEL No. 20/99. It is the responsibility of ANEEL in its capacity as regulatory agency to determine the estimated economic useful lives of each piece of distribution infrastructure assets for pricing purposes, as well as for the purpose of calculating the amount of the relevant compensation payable upon expiration of the concession term. This estimate is revised from time to time, represents the best estimate concerning the assets' useful lives, and is accepted in the market as appropriate for accounting and regulatory purposes. The management of Light SESA is of the opinion that amortization of intangible assets must be consistent with the return expected on each infrastructure asset, via the applicable rates. Thus, intangible assets are amortized over the expected length of such return, limited to the term of the concession. As a result of this amortization method, the total amount of intangible assets will be amortized at all times in a non-linear fashion. Below is a summary of changes in the intangible assets:
CONSOLIDATED Balance as of 12/31/2009 In Service Concession right of use Other Total Intangible in Service (-) Depreciation Concession right of use Other Total Intangible in Service - Depreciation In Progress Concession right of use Other Total Intangible in Progress TOTAL INTANGIBLE ASSETS (I) 5,691,229 413,090 6,104,319 Additions 146,269 2,163 148,432 Write offs (7,758) (7,758) Inter-account transfers (30,120) (30,120) Balance as of 09/30/2010 5,799,620 415,253 6,214,873
6,033 6,033
(1,725)
SUPPLIERS
Parent Company 09/30/2010 12/31/2009 CURRENT Sales within the scope of CCEE Electric network usage charges System service charges Free energy refund to generation companies (a) Electric power auctions Itaipu binational UTE Norte Fluminense Supplies and services Total 494 494 6,348 6,348 Consolidated 09/30/2010 12/31/2009 17,590 46,894 2,216 54,185 128,997 86,367 65,443 401,692 98,290 499,982 21,813 49,024 7,284 54,185 127,704 90,837 67,688 418,535 145,646 564,181
a) Free Energy Reimbursement to Generation Companies At a meeting held December 15, 2009, the executive board of ANEEL approved the methodology and procedures applicable to determining the balances of Free Energy and Revenue Losses incurred by generation and distribution utility companies following expiration of the Extraordinary Rate Review (RTE) applicable to power supply rates. However, Resolution No. 387 as of December 15, 2009, published January 12, 2010, concluded the process of computing the Revenue Loss and Free Energy closing balances, and also determined the amounts of any reimbursement operators should pay each other, as applicable, which were under validation process on December 31, 2010. Energy supply, grid charge, materials and service balances have an average settlement period of up to 90 days.
The statement below summarizes the contractual terms and conditions applicable to our Loans as of September 30, 2010:
Principal Amortization Date of Financing Entity signature TN - Par Bond 4/29/1996 TN - Cauo - Par Bond 4/29/1996 TN - Discount Bond 4/29/1996 TN - Cauo - Discount Bond 4/29/1996 TN - C. Bond 4/29/1996 TN - Debit. Conv. 4/29/1996 TN - Bib 4/26/1996 KFW III , IV, e V - Tranche A/B/C 11/03/2000 Eletrobrs CCB Bradesco BNDES - FINEM BNDES - FINEM direto BNDES - FINEM + 1 BNDES - FINEM direto PSI Working capital - ABN Amro BNDES - PROESCO Banco Real Sundry 10/18/2007 11/05/2007 11/30/2009 11/30/2009 11/30/2009 9/3/2010 12/12/2008 5/25/2010 Currency US$ US$ US$ US$ US$ US$ US$ US$ UFIR CDI TJLP TJLP TJLP CDI TJLP Interest Rate p.a. 6% U$ Treasury Libor + 13/16 U$ Treasury 8% Libor + 7/8 6% Libor + 0.65% 5% CDI + 0.85% TJLP + 4.3% TJLP + 2.58% TJLP + 1% + 2.58% 4.50% CDI + 0.95% TJLP + 2.5% 16.77% Beginning 2024 2024 2024 2024 2004 2004 1999 2003 Payment Lump sum Lump sum Lump sum Lump sum Half-yearly Half-yearly Half-yearly Half-yearly Monthly and quarterly Yearly Monthly Monthly Monthly Monthly Yearly Monthly Monthly Remaining Installments 1 1 1 1 8 4 6 1 between 2 and 120 6 51 72 72 101 1 65 21 End 2024 2024 2024 2024 2014 2012 2013 2010 2013 to 2017 2017 2014 2017 2017 2019 2014 2014 2012
Working capital financing with Banco Real (ABN Amro) maturing in August 2010, in the amount of R$80,000, was renewed with Banco Santander (new controlling shareholder of Banco Real) with same amount and under same contractual conditions to mature on September 3, 2014. On September 27, 2010, R$2,033 were released to Light Esco through Proesco special direct credit facility, in order to implement the energy efficiency project.
In addition to the collaterals indicated above, loans are guaranteed by receivables in the approximate amount of R$52,395. In September 2010, forward swap operations have been contracted with HSBC for R$150,000 out of R$450,000 from CCB Bradesco to mature in October 2017 (straddle operations with maturities of principal and interest rates related to this debt). First operation will begin in October 2010 to mature October 2011 (straddle operations with CCB Bradescos annual interest rates), Light in long position at 100% CDI + 0.85% p.a and in short position at 101.9% CDI + (TJLP 6%). The principal of long-term loans and financing matures as follows (excluding financial charges), as of September 30, 2010:
Consolidated 1/1/11 1 1 11 Foreign Currency 11 ,11 11 ,11 11 ,11 11 ,11 1,11 11 1,11 11 11 ,111
Local Currency 11 11 11 11 11 11 11 11 11 11 11 11 after 1111 TOTAL Total (current and non-current) 1,11 11 22 2 2,22 11 1 1,11 11 1 1,11 11 1 1,11 11 1 1,11 11 1 1,11 1 1,11 ,11 1 1 1,11 ,11 1
Total 2,22 22 11 1 1,11 22 2 2,22 11 1 1,11 11 1 1,11 11 1 1,11 11 1 1,11 1 1,11 ,11 1 1 ,111 ,111
In percentage terms, the variation of major foreign currencies and economic ratios in the period, which are used to adjust loans, financing and debentures, was as follows in the periods:
USD EUR UMBNDES IGP-M CDI SELIC 09/30/2010 (5.96) 4.81 (5.39) 2.09 2.61 2.62 09/30/2009 (8.89) (5.06) (7.70) (0.37) 2.18 2.19
Covenants The funding of CCB Bradesco, the loans with ABN Amro and with BNDES FINEM, classified as current and non-current, requires that the Company maintain certain debt ratios and interest coverage. In the period ended September 30, 2010, the Company and its subsidiaries are in compliance with all required debt covenants.
Financing Entity Debentures 1st Issue Debentures 4th Issue Debentures 5th Issue Debentures 6th Issue LOCAL CURRENCY - TOTAL
Financing Entity Debentures 4th Issue Debentures 5th Issue Debentures 6th Issue
Total principal amount is represented net of debentures issue costs, as provided for in CVM Resolution 556/08. These costs are detailed in the table below:
Incurred value 7,447 6,649 3,300 17,396 09/30/2010 Value to be recognized 21 5,799 1,991 7,811 Total Cost 7,468 12,448 5,291 25,207 12/31/2009 Total Cost 1,070 7,468 12,448 5,291 26,277
Issue Debentures 1st Issue Debentures 4th Issue Debentures 5th Issue Debentures 6th Issue TOTAL
The portions related to the principal of long-term debentures have the following maturities (excluding financial charges) on September 30, 2010:
Local Currency 09/30/2010 2011 2012 2013 2014 2015 TOTAL 17,060 198,240 268,238 335,006 8 818,552
Covenants Classified in the current and non-current, the 5th and 6th Issue of Debentures require the maintenance of indebtedness indexes and coverage of interest rates. In the period ended September 30, 2010, the Company and its subsidiaries complied with all the covenants required. REGULATORY CHARGES CONSUMERS CONTRIBUTION
Consolidated 09/30/2010 12/31/2009 CURRENT Fuel usage account quota CCC Energy development account quota CDE Reversal global reserve quota RGR Incentive Program to Electric Power Alternative Sources PROINFA Charges for capacity and emergency acquisition 18,397 17,182 5,182 8,926 73,169 122,856 4,298 17,173 5,359 10,792 73,169 110,791
CONTINGENCIES Light S.A. and its subsidiaries are party in tax, labor and civil lawsuits and regulatory proceedings in several courts. Management periodically assesses the risks of contingencies related to these proceedings, and based on the legal counsels opinion it records a provision when unfavorable decisions are probable and whose amounts are quantifiable. In addition, the Company does not record assets related to lawsuits with a less-than-probable chance of success, as they are considered uncertain. Provisions for contingencies are as follows:
Labor 163,655 11,812 (5,282) (247) 169,938 Civil 252,149 31,956 10,057 (46,292) (72,173) 175,697 Consolidated Tax 166,426 1,578 15,437 183,441 Other 87,123 36,120 4,285 (26,944) (53,381) 47,203 Total 669,353 81,466 29,779 (78,518) (125,801) 576,279
Balance as of December 31, 2009 Additions Restatements Write-offs / payments Write-offs / reversals Balance as of September 30, 2010 Escrow deposits Balance as of September 30, 2010
16,243
25,862
40,354
1,655
84,114
19.1 Labor Contingencies There are approximately 3,585 labor-related legal proceedings in progress (3,680 on December 31, 2009) in which the Company and subsidiaries are the defendants. These labor proceedings mainly involve the following matters: overtime; hazardous work wage premium; equal pay; pain and suffering; subsidiary/joint liability of employees from outsourced companies; difference of 40% fine of FGTS (Government Severance
Indemnity Fund for Employees) derived from the adjustment due to understated inflation and overtime. 19.2 Civil Contingencies The Company and its subsidiaries are defendants in approximately 38,642 civil legal proceedings (39,506 on December 31, 2009), of which 17,892 are in the state and federal courts referring to Civil Proceedings (14,947 on December 31, 2009), among which those claims that can be accurately assessed amounting to R$457,600 (R$747,873 on December 31, 2009) and 20,507 are in Special Civil Courts (R$24,559 on December 31, 2009), with total claims amounting to R$315,187 (R$377,124 on December 31, 2009).
Civil Contingencies Accrued Value (probable loss) 09/30/2010 a) Civil proceedings b) Special civil court c) "Cruzado" Plan Total 106,670 28,001 41,026 175,697 12/31/2009 124,576 29,555 98,018 252,149
a) The Provision for civil proceedings comprises lawsuits in which the Company is the defendant and it is probable the claim will result in a loss in the opinion of the respective attorneys. The claims mainly involve alleged moral and property damage caused by the companys overpowering behavior towards measures against network irregularities, as well as consumers challenging the amounts paid. The Company is also party to civil proceedings that Management believes that risk of loss are less than probable, based on the opinion of its legal counsels. Therefore, no provision was established. The amount, currently assessed, represented by these claims is R$298,237 (R$480,060 on December 31, 2009). The difference seen this quarter is due to a revision of the 11,559 civil claims assessed by partner law firms. b) Lawsuits in the Special Civil Court are mostly related to matters regarding consumer relations, such as improper collection, undue power cut, power cut due to delinquency, network problems, various irregularities, bill complaints, meter complaints and problems with ownership transfer. There is a limit of 40 minimum monthly wages for claims under procedural progress at the Special Civil Court. Accruals are based on the moving average of the last 12 months of condemnation amount. c) In the last quarter, Light obtained a favorable court decision at the Superior Court of Justice STJ, final decision on the proceeding No. 1995.001.073862-2 against CSN which called into question the legality of tariff adjustment authorized by DNAEE during price freeze period (Cruzado Plan). Such decision allowed the Company to reverse accrued amounts of R$61,735 against operating costs and
expenses. 19.3 Tax Contingencies The provisions established for tax contingencies are as follows:
Tax Contingencies Accrued Value (probable loss) 09/30/2010 PIS/COFINS RGR and CCC INSS tax deficiency notice INSS quarterly ICMS CIDE Other Total 12,948 40,519 22,290 98,367 4,937 4,380 183,441 12/31/2009 8,561 39,291 21,504 88,039 4,792 4,239 166,426
After the enactment of Law 11,941/2009, which authorized the payment of federal tax debts by installments, Light SESA decided to include the debts from certain legal and administrative proceedings in said installment program. It is worth mentioning that the adhesion to said installment program has already been granted by Brazilian Federal Revenue Office, according to the electronic message sent to the Company on December 12, 2009, and currently, the Company awaits the consolidation of said debts. The Company and its subsidiaries are parties to tax, regulatory and legal proceedings in which Management, based on the opinion of its legal counsels, believes the risks of loss are less than probable, and for which no provision was recorded. Currently, the quantifiable amount of these proceedings is R$953,900 (R$1,156,600 on December 31, 2009). The tax proceedings, deemed as possible loss, had effects in the quarter: (i) ICMS losses - ICMS collection (from January 1999 to December 2003) since Light has not reversed the alleged credit that has been utilized due to electricity purchased in the State of Rio de Janeiro, and subsequently lost.The Mandatory Appeal of the State Government was granted partial relief, reducing the tax assessment from R$506,000 to R$251 (historic amount). (ii) ICMS TUSD and TUST the levy of ICMS is challenged in five tax-deficiency notices, related to the charges paid to Light SESA by other electricity concessionaires, by force of mandatory availability (legal estimate) of their distribution and transmission network. In four tax-deficiency notices, Light obtained a favorable final court decision and assessments of R$31,206 have been cancelled. Only one of the tax-deficiency notices is pending judgment on the Voluntary Appeal. The amount involved in this tax-deficiency notice is R$311. (iii) ICMS for Low-Income Consumers levy of ICMS and fine since Light has not submitted to taxation the revenue deriving from Global Reversal Reserve, received as additional tariff charged to low-income consumers from May 2002 to July 2004. Lights
challenge was rejected, reason that a voluntary appeal was filed. The amount involved on September 30, 2010 was R$69,700. (iv) PIS/COFINS transfer Up to September 30, 2010, 241 suits were filed against the Company by commercial clients questioning the PIS and COFINS transfer onto electricity price, claiming the reimbursement of all amounts paid improperly. On August 22, 2010, the Superior Court of Justice judged a leading case of the electricity sector, deeming as legal PIS/COFINS transfer to electricity bills. Considering the former court decisions favorable to distribution companies, the chances of loss, which were possible, now are remote. (v) COFINS Spontaneous Confession It refers to a lawsuit in which Light discusses the unenforceability of default charges due to payment in arrears of COFINS. Light obtained favorable decision in the lower and appellate courts. However, the Superior Court of Justice granted relief to the Special Appeal filed by federal government. In view of this new scenario, Light made a court deposit to suspend the enforceability of credit and altered the chances of losses from possible to probable and the amount of R$4,387 have been accrued. (vi) Land Occupancy Fee (Municipality of Paraba do Sul) The municipality was charging Light SESA the amount of R$3,213 as Occupancy Inspection Fee and Permanence in Areas, Streets and public roads due to implementation of the Companys electricity poles in Paraba do Sul. On August 9, 2010, Lights motions to stay execution were granted relief, dismissing the execution in view of the annulment of the overdue federal liabilities certificate. In view of this favorable court decision, the chances of loss, which were possible, now are remote. 19.4 Other Contingencies a) Administrative Regulatory Contingencies This quarter, there were no regulatory lawsuits and current lawsuits did not record significant developments. POST-EMPLOYEMENT BENEFITS Light Groups companies sponsor Fundao de Seguridade Social BRASLIGHT, a nonprofit closed pension entity, whose purpose is to provide retirement benefits to the Companys employees and pension benefits to their dependents. BRASLIGHT was incorporated in April 1974 and has four plans - A, B, C and D established in 1975, 1984, 1998 and 2010, respectively, with about 96% of the active participants of the other plans having migrated to plans A and B. Current plans in effect include defined-benefit- (Plans A and B), mixed-benefit- (Plan C), and defined-contribution plans (Plan D). For details on said plans see Note 21 to the financial statements for the year ended December 31, 2010.
a) Below is a summary of the Company's liabilities involving pension plan benefits as stated on its balance sheet:
Current Contractual debt with pension fund Other Total 93,250 390 93,640 09/30/2010 Non-current 869,468 869,468 Total 962,718 390 963,108 Current 95,044 95,044 12/31/2009 Non-current 861,386 861,386 Total 956,430 956,430
The statement below summarizes the changes in agreement liabilities in quarters ended September 30, 2010 and 2009:
Total Consolidated Contractual liabilities on 12/31/2009 Amortization in the period Restatements in the period Transfer to current Contractual liabilities on 9/30/2010 956,430 (69,555) 75,843 962,718 Current 95,044 (69,555) 38,830 28,931 93,250 Non-current 861,386 37,013 (28,931) 869,468
21.
OTHER DEBTS
Parent Company 09/30/2010 12/31/2009 Consolidated 09/30/2010 12/31/2009 8,506 3,563 924 1,847 69,295 44,199 54,057 32,516 214,907 8,691 4,293 1,038 2,173 76,012 49,090 51,402 11,622 31,707 236,028
CURRENT Advances from clients Compensation for use of water resources Energy Research Company EPE National Scientific and Technological Development Fund FNDCT Energy Efficiency Program PEE Research and Development Program P&D Public lighting fee Other debits - reimbursements to consumers Other Total NON-CURRENT Provision for success fees Reversal reserve Use of Public Asset - UBP (a) Other Total
1,786 1,786
1,524 1,524
22.
RELATED-PARTY TRANSACTIONS
Light S.A. has as controlling group the Companhia Energtica de Minas Gerais CEMIG, Andrade Gutierrez Concesses, Luce Empreendimentos e Participaes S.A. and Rio Minas Energia Participaes S.A (RME) company controlled by Equatorial Energia (see Note 21). Interest in operating subsidiaries are outlined in the Note 1. Below, a summary of related-party transactions occurred in the quarters ended September 30, 2009 and 2010:
Contracts with the same group Item 1 (Agreement objectives and characteristics) Strategic agreement P urchase agreement of electric power between Light SESA and C EM IG Strategic agreement P urchase agreement of electric power between Light SESA and C EM IG Strategic agreement Sale agreement of electric power between Light Energia and CEM IG Strategic agreement C ollection of distribution system usage charges between Light SESA and CEM IG Strategic agreement C ommitment to the basic electric network usage charges between Light SESA and C EM IG Strategic agreement C ommitment to the basic electric network usage charges between Light Energia and C EM IG Strategic agreement Sale committment of electric power between Light Energia and C EM AR Loans 8 F INEM Loans
R elationship with Light S.A . CEM IG (party of the controlling group) CEM IG (party of the controlling group) CEM IG (party of the controlling group) CEM IG (party of the controlling group) CEM IG (party of the controlling group) CEM IG (party of the controlling group) Equatorial (party of the controlling group)
8,492 2,248 -
75,457 11,315 -
BNDES
BNDES
331,813
394,139
27,015
BNDES
446
(293)
1 0
BNDES
4,090
8,057 1,812
115
997 72
1 1
P r Esco and Energy Efficiency P roject Loans Debentures 4th issue - Convertible Loans BNDES
1 2
BNDES
91
107
9,609
59
1 3
BNDES
116,154
59,806
5,169
1 4
C redit facility - Direct +1 % Loans C redit facility - Direct P SI P ension P lan F undao de Seguridade Social (Social Security Foundation) - B RASLIGHT
42,765
1 5 1 6
Item
Original amount
A greement Conditions
J an/201 0
Dec/2039
J an/2005
Dec/201 3
Nov/2003
Undetermined
N/A
Dec/2002
Undetermined
N/A
Dec/2002
Undetermined
N/A
J an/2005
Dec/201 3
N/A
61,214
23,709
739,148
331,813
14,147
105,000 4,428
Dec/2008 Oct/201 4 N/A
4,090
TJ LP +2.5% p.a.
J un/2005
J un/201 5
N/A
TJ LP +4% p.a.
767,252
Dec/2009 A pr/201 7 N/A
91
TJ LP +2.58% p.a.
1 3
114,510
116,154
114,510
116,383
57,125
57,436
535,052
963,108
* Equatorial Energia S.A.s subsidiary. Related-party transactions have been executed under usual market conditions. MANAGEMENT COMPENSATION Policy regarding compensation of the Board of Directors, Executive Board, Fiscal Council and board committees.
Pro-rata share of each component to the aggregate compensation for 2010. Board of Directors Fixed Remuneration: Variable Remuneration: Board of Executive Officers Fixed Remuneration: Variable Remuneration: Outros Fiscal Council Fixed Remuneration: Variable Remuneration:
Compensation paid by the Company to the Board of Directors, Executive Board, and Fiscal Council in the third quarter of 2010:
Consolidated Board of Directors 22 272 272 272 Board of Executive Offcers 7 92 92 92 2,041 1,025 1,016 2,041
2010 Number of members Annual fixed compensation Salary or pro-labore Direct and indirect benefits Compensation for participation in Committee Other Variable compensation Bonus Profit sharing Compensation for attending meetings Commissions Other (ILP) Post-employment benefits Benefits from the assignment of office Share-based compensation Total compensation per body
Fiscal Council 5
Average annual compensation due to the Board of Directors, Executive Board, and Fiscal Council in third quarter of 2010:
Parent Company Board of Fiscal Executive Committee Offcers 5 95 47 71 74 74 74 7 164 144 146
2010 Number of members Highest individual compensation Lowest individual compensation Average individual compensation
Board of Directors 22
23.
SHAREHOLDERS EQUITY
Capital Stock There are 203,934,060 non-par and book-entry common shares of Light S.A. (203,934,060 on December 31, 2009) as of September 30, 2010 recorded as Capital Stock in the total amount of R$2,225,822 (R$2,225,822 on December 31, 2009), as follows:
SHAREHOLDERS Controlling Group RME Rio Minas Energia Participaes S.A. Andrade Gutierrez Concesses S.A. Companhia Energtica de Minas Gerais S.A. Luce Empreendimentos e Participaes S.A. Other BNDES Participaes S.A. - BNDESPAR Public Treasury shares Overall Total 09/30/2010 Number of Shares 106,304,597 26,576,150 1,081,649 52,070,649 26,576,149 97,629,463 40,826,782 56,802,681 203,934,060 % Interest 52.12 13.03 0.53 25.53 13.03 47.88 20.02 27.86 100 12/31/2009 Number of Shares 106,304,597 26,576,150 26,576,149 26,576,149 26,576,149 97,629,463 49,776,782 47,593,781 258,900 203,934,060 % Interest 52.12 13.03 13.03 13.03 13.03 47.88 24.41 23.34 0.13 100
Light S.A. is authorized to increase its capital up to the limit of 203,965,072 through resolution of the Board of Directors, regardless of amendments to the bylaws. However, this increase is to occur exclusively upon the exercise of the warrants issued, strictly pursuant to the conditions of the warrants (Bylaws, Article 5, paragraph 2). 24. DIVIDENDS
At the Extraordinary General Meeting held on September 23, 2010, the shareholders approved the distribution of interim dividends in the amount of R$363,002, referring to the profit reserve recorded in the balance sheet as of December 31, 2009. These dividends were made available to shareholders on October 1, 2010. 25. EARNINGS PER SHARE
Pursuant to the requirements of CPC 41 and the IAS 33 (Earnings per Share), the statement below reconciles the year's earnings per share with the amounts used to determine the basic and diluted earnings per share.
Consolidated 09/30/2010 NUMERATOR Net income for the period (R$) DENOMINATOR Weighted average number of common shares BASIC AND DILUTED EARNING PER COMMON SHARE S 2.566 2.887 523,395 203,934,060 12/31/2009 588,804 203,933,966
There were no significant differences between the basic and diluted earnings per share as of September 30, 2009 and 2010. 26. NET OPERATING REVENUE BREAKDOWN
Consolidated 2010 Supply to consumers/distributors (note 29) Leases, rentals and other Revenue from network usage Revenue from consrtruction Revenue from services rendered Taxed service fee Other Revenues GROSS REVENUE Billed supply -ICMS PIS / COFINS Other REVENUE TAXES 1,939,440 6,166 193,880 134,574 27,001 586 2,301,647 (485,759) (125,191) (807) (611,757) 2009 1,802,308 10,170 149,121 155,208 5,588 725 2,123,120 (455,525) (95,182) (371) (551,078)
Fuel Consumption Account - CCC Energy Development Account - CDE Global Reveral Reserve - RGR Energy Research Company - EPE National Technological Development Fund - FNDCT Energy Efficiency Program - PEE Research and Development -R&D Other Charges CONSUMER CHARGES TOTAL DEDUCTIONS NET REVENUE
(53,366) (51,546) (15,838) (1,470) (2,942) (6,526) (2,943) (1,357) (135,988) (747,745) 1,553,902
(46,717) (51,519) (20,100) (1,287) (2,566) (5,675) (2,566) (130,430) (681,508) 1,441,612
Consolidated 2010 Supply to consumers/distributors (note 29) Leases, rentals and other Revenue from network usage Revenue from consrtruction Revenue from services rendered Taxed service fee Other Revenues GROSS REVENUE Billed supply -ICMS PIS / COFINS Other REVENUE TAXES 6,262,688 28,063 548,083 357,010 54,402 1,564 7,251,810 (1,663,478) (401,802) (2,976) (2,068,256) 2009 5,914,679 30,014 440,237 381,813 20,669 2,079 6,789,491 (1,531,200) (320,702) (2,041) (1,853,943)
Fuel Consumption Account - CCC Energy Development Account - CDE Global Reveral Reserve - RGR Energy Research Company - EPE National Technological Development Fund - FNDCT Energy Efficiency Program - PEE Research and Development -R&D Other Charges CONSUMER CHARGES TOTAL DEDUCTIONS NET REVENUE
(158,812) (154,638) (49,954) (4,561) (9,121) (20,502) (9,122) (1,357) (408,067) (2,476,323) 4,775,487
(114,041) (154,557) (60,299) (4,130) (8,252) (18,441) (8,252) (367,972) (2,221,915) 4,567,576
27.
GWh 2010 1,777 414 1,386 12 322 171 272 25 4,379 4,379 1,190 236 1,426 5,805
(1)
R$ 2009 1,761 458 1,388 12 317 168 263 16 4,383 4,383 1,154 157 1,311 5,694 2010 589,680 78,221 429,114 2,228 103,245 25,971 56,808 1,285,267 479,098 18,466 1,782,831 120,572 36,037 156,609 1,939,440 2009 564,265 95,338 414,569 2,164 97,598 24,541 51,183 1,249,658 454,589 6,673 1,710,920 82,332 9,056 91,388 1,802,308
07.01 to 09.30 Residential Industrial Commerce, services and other Rural Public sector Public lighting Public utility Own consumption Billed sales ICMS (State VAT) Unbilled sales TOTAL SUPPLY
(3)
3,702,644 11,993 272,633 11,162 10,079 431 1,329 331 4,010,602 4,010,602 4,010,602
Consolidated 01.01 to 09.30 Residential Industrial Commerce, services and other Rural Public sector Public lighting Public utility Own consumption Billed sales ICMS (State VAT) Unbilled sales TOTAL SUPPLY
(3)
Number of billed sales 2010 2009 3,736,440 11,472 274,078 11,147 10,366 706 1,316 360 4,045,885 4,045,885 4,045,885
(1) (2)
GWh 2010 6,185 1,286 4,593 38 1,075 508 820 59 14,564 14,564 3,430 467 3,897 18,461
(1)
R$ 2009 5,785 1,349 4,447 37 1,029 506 799 50 14,002 14,002 3,413 639 4,052 18,054 2010 2,058,182 253,264 1,394,611 7,043 332,996 77,258 167,036 4,290,390 1,647,150 (36,491) 5,901,049 303,506 58,133 361,639 6,262,688 2009 1,893,070 303,824 1,375,607 6,973 320,744 75,657 159,407 4,135,282 1,523,465 (14,353) 5,644,394 241,627 28,658 270,285 5,914,679
3,702,644 11,993 272,633 11,162 10,079 431 1,329 331 4,010,602 4,010,602 4,010,602
28.
07.01 to 09.30
Nature of the expense Personnel and management Material Outsourced services Electricity purchased for resale (Note 26) Depreciation and amortization Allowance for doubtful accounts Provision for contingencies Cost of Construction Other Total
(821,977) (821,977)
(64,769) (8,892) (87,975) (821,977) (89,144) (66,666) 44,872 (134,574) (24,719) (1,253,844)
(60,592) (4,607) (65,399) (774,557) (85,966) (57,935) (9,087) (155,208) (19,208) (1,232,559)
01.01 to 09.30
Cost of Service Electric Power Operation (120,930) (21,144) (110,784) (235,361) (357,010) (11,898) (857,127) Selling (11,032) (1,685) (56,652) (776) (205,459) (657) (276,261)
Consolidated Operating Expenses General and Adm (50,395) (2,966) (86,948) (26,721) 45,003 (59,720) (181,747) Other Operating Revenues (Expenses) 11,879 11,879 2010 2009
Nature of the expense Personnel and management Material Outsourced services Electricity purchased for resale (Note 26) Depreciation and amortization Allowance for doubtful accounts Provision for contingencies Cost of Construction Other Total
(2,477,688) (2,477,688)
(182,357) (25,795) (254,384) (2,477,688) (262,858) (205,459) 45,003 (357,010) (60,396) (3,780,944)
(199,422) (15,545) (188,107) (2,536,175) (257,722) (184,643) (32,968) (381,813) (62,593) (3,858,988)
29.
07.01 to 09.30 2010 Connection charges Spot market energy Network usage charges Itaipu UTE Norte Fluminense O.N.S. PROINFA ESS Other contracts and electric power auctions
GWh
(1)
R$ 2010 (4,680) 427 (102,684) (136,897) (200,691) (3,505) (26,778) (27,876) (319,293) (821,977)
2009 (4,732) (15) (107,215) (147,949) (242,025) (3,877) (23,745) (4,372) (240,627) (774,557)
01.01 to 09.30 2010 Connection charges Spot market energy Network usage charges Itaipu UTE Norte Fluminense O.N.S. PROINFA ESS Other contracts and electric power auctions
(1)
R$ 2010 (13,875) (7,653) (312,989) (415,575) (595,506) (13,099) (87,394) (82,435) (949,162) (2,477,688)
2009 (14,306) (53,252) (302,166) (718,216) (491,079) (10,922) (76,657) (32,942) (836,635) (2,536,175)
30.
FINANCIAL INCOME
Parent Company 2010 2009 28 311 243 582 (49) (49) 533 69 5 74 (175) (175) (101) Consolidated 2010 16.971 1.850 20.794 125 3.541 43.281 (13.545) (6.962) (383) (14.424) (14.626) (1.649) (49.291) (31) (103) (1.551) (4.667) 14.782 (3.327) (6.413) (102.190) (58.909) 2009 14.927 3.530 17.211 (1.761) 8.348 42.255 4.655 (6.695) (7.321) (22.277) (2.912) (49.079) (3.518) (387) (379) (3.585) (2.157) (93.655) (51.400)
07.01 to 09.30 REVENUES Interest and variation on debts paid by installments Restatement of tax credits Income from temporary cash investments Swap operations Other EXPENSES Adjustment at present value of receivables Restatement of tax liabilities Restatement of provision for contingencies Banking expenses Charges and monetary variations with BNDES financing Charges and monetary variations on actuarial liability of Brasilight Interest and charges on loans and financing foreign currency Interest and charges on loans and financing domestic currency Regulatory fines Interest and fines on taxes Regulatory fines Installment payment - Other fines and interest rates Law 11941 / 09 Monetary variation local currency Exchange variation foreign currency Swap operations Other
01.01 to 09.30 REVENUES Interest and variation on debts paid by installments Restatement of tax credits Income from temporary cash investments Swap operations Other EXPENSES Adjustment at present value of receivables Surplus (deficit) adjustment - Braslight Restatement of tax liabilities Restatement of provision for contingencies Banking expenses Charges and monetary variations with BNDES financing Charges and monetary variations on actuarial liability of Brasilight Interest and charges on loans and financing foreign currency Interest and charges on loans and financing domestic currency Encargos sobre passivos regulatrios Credit reversal of IR Debenture 4th Issue Interest and fines on taxes Regulatory fines Installment payment - Other fines and interest rates Law 11941 / 09 Monetary variation local currency Exchange variation foreign currency Swap operations Other
Parent Company 2010 2009 48 654 250 952 (49) (49) 903 1.157 20 1.177 (416) (416) 761
Consolidated 2010 58.926 19.923 49.517 157 10.924 139.447 (5.488) (6.388) (34) (29.779) (15.721) (39.158) (75.841) (5.621) (136.471) (5.254) (11.523) 9.615 (8.446) 7.780 (10) 11.544 (3.246) (14.355) (328.396) (188.949) 2009 61.016 18.456 45.069 (10.047) 7.288 121.782 16.074 (22.284) (37.511) (2.411) (384) (42.765) (10.664) (139.741) (10.651) (394) 42.429 (6.145) 17.194 (197.253) (75.471)
31.
FINANCIAL INSTRUMENTS
Below, we compared book and fair values of financial instruments assets and liabilities:
Parent Company 09/30/2010 12/31/2009 Book value Fair Value Book value Fair Value ASSETS Cash and cash equivalents (note 5 ) Other Receivable (note 11) 425,605 2,064 427,669 425,605 2,064 427,669 14,584 20,212 34,796 14,584 20,212 34,796
494 494
494 494
6,348 6,348
6,348 6,348
Consolidated 09/30/2010 12/31/2009 Book value Fair Value Book value Fair Value ASSETS Cash and cash equivalents (note 5 ) Marketable Securities (note 6) Concessionaires and permissionaires (note 7) Swaps Concession financial assets (note 10) Other Receivable (note 11) 838,580 11,083 1,503,171 384,903 132,331 2,870,068 838,580 11,083 1,503,171 384,903 132,331 2,870,068 760,313 68,059 1,653,652 4 354,784 97,250 2,934,062 760,313 68,059 1,653,652 4 354,784 97,250 2,934,062
LIABILITIES Suppliers (Note 15) Loans and financing (Note 16) Debentures (Note 17) Swaps (Note 16)
In compliance with CVM Statement No. 475/2008 and CVM Resolution No. 604/2009, which superseded Resolution No. 566/2008, the description of accounting balances and fair value of financial instruments stated in the balance sheet as of September 30, 2010 and 2009 are identified as follows:
Financial investments
Financial investments in bank deposit certificates are measures at their acquisition cost duly escalated at the balance sheet date, which value is proximate to their fair value, as determined by the management.
Marketable Securities
Financial investments in bank deposit certificates are measures at their acquisition cost duly escalated at the balance sheet date, which value corresponds to their fair value.
values and subject to a provision for losses and adjustments to their present values, where applicable.
Suppliers
Accounts payable to suppliers of materials and services required in the operations of the Company and its subsidiaries, the amounts of which are known or easily determinable, added, where applicable, of relevant charges, escalation and/or exchange costs incurred as of the balance sheet date. These balances are classified as financial liability not measured at fair value and were recognized at their amortized cost, which is not significantly different from their fair value.
Swaps
Swap operations are measured by the fair value. A the determination of fair value used available information in the market and usual pricing methodology: the face value (notional) evaluation for long position (in U.S. dollars) until maturity date and discounted at present value of clean coupon rates, published in bulletins of Securities, Commodities and Futures Exchange BM&F Bovespa. It is worth mentioning that estimated market value of financial assets and liabilities were determined by means of information available on the market and appropriate valuation methodologies. Nevertheless, meaningful judgment was required when interpreting market data to produce the most appropriate fair value estimate. As a result, estimates used and presented below do not necessarily indicate the amounts that may be realized in current exchange market. a) Financial Instruments by category:
Parent Company 09/30/2010 Fair value Loans through and receivables profit and loss ASSETS Cash and cash equivalents (note 5 ) Marketable Securities (note 6) Concessionaires and permissionaires (note 7) Swaps Concession financial assets (note 10) Other Receivable (note 11) 425.605
-
Consolidated 09/30/2010 Fair value through profit and loss Fair value through profit and loss -
2.064 427.669
Amortized cost LIABILITIES Suppliers (Note 15) Loans and financing (Note 16) Debentures (Note 17) Swaps (Note 16) 494 494
b) Policy for utilization of derivatives The Company has a policy for utilization of derivative instruments approved by the Board of Directors determining the debt service protection (principal plus interest and commissions) denominated in foreign currency to mature within 24 months, forbidding any utilization for speculative purposes, whether in derivatives or any other risk assets. In line with provisions of this policy, the Company and its subsidiaries do not have futures contracts, options, swaptions, swaps with regret option, flexible options, derivatives embedded in other products, structure operations with derivatives and exotic derivatives. In addition, it is evidenced through the chart above that the single derivative instrument used by the Company and its subsidiaries is the non-cash currency swap (US$ versus CDI), whose Contractual Notional Value corresponds to the amount of foreign currency-denominated debt service to expire within 24 months. c) Risk management and objectives achieved The management of derivative instruments is conducted by means of operating strategies, aiming liquidity, profitability and safety. The control policy consists of permanently inspecting the policy compliance in the utilization of derivatives, as well as to monitor the rates contracted against those used in the market. d) Risk Factors During the normal course of its businesses, the Company and its subsidiaries are exposed to the market risks related to currency variations and interest rates, as evidenced in the chart below: Debt breakdown (excluding financial charges):
Consolidated 09/30/2010 USD Currency Basket (BNDES) Foreign currency (current and non-current) CDI TJLP Other Local currency (current and non-current) Overall total (current and non-current) R$ 80,960 80,960 1,714,710 562,873 60,004 2,337,587 2,418,547 % 3.3 3.3 70.9 23.3 2.5 96.7 100.0 12/31/2009 R$ 99,721 444 100,165 1,763,892 521,542 39,079 2,324,513 2,424,678 % 4.1 4.1 72.7 21.5 1.7 95.9 100
On September 30, 2010, according to the chart above, the foreign currency-denominated debt is R$80,960, or 3.35% of total debt. Financial derivative instruments were contracted for the amount of foreign currencydenominated debt service to expire within 24 months, in the swap modality, whose notional value on September 30, 2010 stood at US$21,868, according to the policy for utilization of derivative instruments approved by the Board of Directors. Thus, if we deduct this amount from total foreign currency-denominated debt, the foreign exchange exposure represents 1.81% of total debt. Below we provide a few considerations and analyses on risk factors impacting on business of Grupo Light companies: Currency risk Considering that a portion of Light SESAs loans and financing is denominated in foreign currency, the company uses derivative financial instruments (swap operations) to hedge service associated with these debts (principal plus interest and commissions) to expire within 24 months. Derivative operations resulted in a R$3,348 loss in 3Q10 (a loss of R$5,344 in 3Q09). The net amount of swap operations as of September 30, 2010, considering the fair amount, is a negative R$8,872 (negative by R$5,487 on September 30, 2009), as shown below:
Light's Light's Receivable Payable
US$+2.80% US$+2.80% US$+2.20% US$+2.33% US$+2.30% US$+2.79% US$+3.20% US$+2.82% US$+2.50% 100% CDI 100% CDI 100% CDI 100% CDI 100% CDI 100% CDI 100% CDI 100% CDI 100% CDI
Institution
Citibank Citibank Banco Itau Citibank Banco Itau Banco Itau Citibank Banco Itau Bradesco
Starting Date
10/02/09 10/02/09 18/06/09 18/06/09 10/09/09 09/10/09 10/03/10 12/04/10 10/09/10
Maturity Date
10/11/10 12/27/2010 03/10/11 04/12/11 09/12/11 11/10/11 03/12/12 04/11/12 09/10/12
Notional Fair Value Fair Value Value Sep/10 Sep/10 Contracted (R$) (R$)
5,511 376 69 5,435 67 5,273 64 5,010 63 21,868 (4,675) (319) (31) (2,428) (17) (769) (9) (622) (2) (8,872)
Total
The amount recorded was already measured by its fair value on September 30, 2010. All operations with derivative financial instruments are registered in clearing houses for the
custody and financial settlement of securities and there is no margin deposited in guarantee. Operations have no initial cost.
Below, the sensitivity analysis for foreign exchange and interest rates fluctuations, showing eventual impacts on financial result of the Company and its subsidiaries. The methodology used in the Probable Scenario was to consider that both foreign exchange and interest rates will maintain the same level verified on September 30, 2010 until the end of 2010, maintaining steady liabilities, derivatives and temporary cash investments verified on September 30, 2010. It is worth highlighting that, as this refers to a sensitivity analysis of the impact on the 2010 financial result, the realized amounts of financial expense and/or revenue until 3Q10 were considered, and charges projection for the next three months over debt balance on September 30, 2010. It is worth mentioning that the behavior of debt and derivatives balances will observe their respective contracts, and the balance of temporary cash investments will fluctuate according to the need or available funds of the Company and its subsidiaries.
Risk of Exchange Rate Depreciation
R$
Operation FINANCIAL LIABILITIES Par Bond Discount Bond C. Bond Debit. Conv. Bib Bndes - Import Financ. KfW DERIVATIVES Swaps Risk Scenario (I): Probable Scenario (II) Scenario (III)
Reference for financial assets and liabilities Financial R$/US$ exchange rate (end of the period)
+50% 2.5413
Reference for financial assets and liabilities Financial R$/US$ exchange rate (end of the period)
-50% 0.8471
With the chart above, it is possible to identify that despite partial hedge against foreign currency-denominated debt (only limited to debt service to expire within 24 months), as R$/US$ quote increases, liabilities financial expense also increases but financial revenues of derivatives also partially offset this negative impact and vice-versa. Thus, cash is hedged thanks to the derivatives policy of the Company and its subsidiaries.
Interest rate risk This risk derives from impact of interest rates fluctuation not only over financial expense associated with loans and financing of subsidiaries, but also over financial revenues deriving from temporary cash investments. The policy for utilization of derivatives approved by the Board of Directors does not comprise the contracting of instruments against such risk. Nevertheless, the Company and its subsidiaries continuously monitor interest rates so that to evaluate eventual need of contracting derivatives to hedge against interest rates volatility risk. See below the sensitivity analysis of interest rate risk, evidencing the effects on scenarios variation results:
Operation
Risk
Scenario (III)
FINANCIAL ASSETS Temporary cash investments FINANCIAL LIABILITIES Debentures 5th issue CCB Bradesco CCB Bco ABN Amro Banking S/A Debentures 4th issue FINEM BNDES 2006-2008 FINEM BNDES 2009-2010 FINEM BNDES 2009-2010 TJLP+1 PROESCO Debentures 6th issue DERIVATIVES Swaps Reference for FINANCIAL ASSETS CDI (% YTD) Reference for FINANCIAL LIABILITIES CDI (% YTD) TJLP (% YTD)
CDI
71,637
74,109
(244,037) (99,212) (47,957) (8,613) (13) (37,737) (8,346) (9,064) (204) (32,891)
(258,631) (105,024) (50,881) (9,133) (13) (39,533) (8,966) (9,685) (222) (35,174)
(273,240) (110,834) (53,806) (9,654) (14) (41,328) (9,585) (10,306) (240) (37,473)
CDI
(4,467)
9.73%
9.73% 6.09%
Operation
Risk
Scenario (V)
FINANCIAL ASSETS Temporary cash investments FINANCIAL LIABILITIES Debentures 5th issue CCB Bradesco CCB Bco ABN Amro Banking S/A Debentures 4th issue FINEM BNDES 2006-2008 FINEM BNDES 2009-2010 FINEM BNDES 2009-2010 TJLP+1 PROESCO Debentures 6th issue DERIVATIVES Swaps Reference for FINANCIAL ASSETS CDI (% YTD) Reference for FINANCIAL LIABILITIES CDI (% YTD) TJLP (% YTD)
CDI 69,115 (244,037) (99,212) (47,957) (8,613) (13) (37,737) (8,346) (9,064) (204) (32,891) 66,543 (229,461) (93,403) (45,032) (8,092) (12) (35,942) (7,727) (8,443) (185) (30,625) 63,918 (214,899) (87,592) (42,107) (7,571) (11) (34,146) (7,107) (7,822) (167) (28,376)
CDI CDI CDI TJLP TJLP TJLP TJLP TJLP CDI CDI
(4,467)
9.73%
9.73% 6.09%
Credit risk It refers to the Company and its subsidiaries eventually suffering losses deriving from default of counterparties or financial institutions depositary of funds or temporary cash investments. To mitigate these risks, the Company and its subsidiaries adopt as practice to analyze the financial and equity conditions of its counterparties, as well to define the credit limits and continuously monitor outstanding positions. Concerning financial institutions, the Company and its subsidiaries only carry out operations with low-risk financial institutions classified by rating agencies.
Liquidity risk Liquidity risk relates to the Company's ability to settle its liabilities. In order to determine the Company's ability to satisfactorily meet its financial liabilities, the streams of maturities for funds raised and other liabilities are reported with the Company's statements. Further information on the Company's loans can be found in detail in Note 16. The Company has raised funds through its operations, from financial market transactions and from affiliate companies. These funds are allocated primarily to support its investment plan and in managing its cash for working capital and liability
management purposes. Management of financial investments focuses on short-term instruments in an attempt to achieve maximum liquidity and satisfy our expenditure requirements. The Company's cash-generation ability and low volatility concerning receivables and accounts payable over the year provide cash flow stability and thus reduce its liquidity exposure. The realization flow concerning future liabilities as per the relevant terms and conditions is summarized in the statement below: Por que esta tabela tem 2 linhas? Os ttulos so os mesmos. Ou ento faltou algo.
1 to 3 months 142,749 3 months to 1 year 709,462 Consolidated 1 to 5 years 2,100,990 More than 5 years 107,706 Total
Interest rate instruments Fixed rate Loans, financings and debentures Interest rate instruments Fixed rate Loans, financings and debentures
3,060,907
11,403
41,212
171,004
146,783
370,402
e) Capital Management The Company manages its capital with the purpose of safeguarding its capacity to continuously offer return to shareholders and benefits to other stakeholders, in addition to maintaining the ideal capital structure to reduce costs. In order to maintain or adjust its capital structure, the Company reviews the dividend payment policy, returns capital to shareholders or issues new shares and sells assets to reduce the indebtedness level, for instance. f) Hierarchical Fair Value There are three types of classification levels for the fair value of financial instruments. This hierarchy prioritizes unadjusted prices quoted in an active market for financial assets or liabilities. The classification of hierarchical levels can be presented as follows: Level 1 - Data originating from an active market (unadjusted quoted price) that can be accessed on a daily basis, including at the date of fair value measurement. Level 2 - Different data originating from the active market (unadjusted quoted price) included in Level 1, extracted from a pricing model based on data observable in the market. Level 3 - Data extracted from a pricing model based on data that are not observable in the market.
09/30/2010 ASSETS Cash and cash equivalent (note 5) Marketable Securities (note 6) Swaps 838,580 11,083 849,663
Consolidated Measurement of Fair Value Identical Similar markets markets Level 1 Level 2 838,580 11,083 849,663
LIABILITIES Loans and Financings (note 16) Debentures (note 17) Swaps (note 16)
No financial instrument classified as Level 1 or 3 was observed in the analysis year, and there was no transfer from one level to another in the same year.
32.
INSURANCE
On September 30, 2010, Light Group had insurance covering its main assets. The assumptions of risks adopted, given their nature, are not included in the scope of a special review, accordingly, they were not audited by independent auditors. Insurance coverage as of September 30, 2010 is considered sufficient by Management, as summarized below:
RISKS Directors & Officers (D&O) Civil and general liabilities Operating risks* Effective Term From To 1/1/11 1 1 11 2/2/22 2 2 22 1/1/11 1 1 11 Amount Insured Premium
1/1/11 1 1 11 US$11 .111 US$11 1/1/11 1 1 11 R$11 ,111 R$111 1/1/11 R$ 1 ,111 R$1 1 1 11 ,111 ,111
* The contract was renewed and will be effective from 11 /1111 /11 , with risk value of R$1 ,111 premium of R$1 . /11 to 11 /1111 ,111 and ,111 *The Maximum Limit of Indemnification (MLI) stood at R$111 . ,111
33.
SEGMENT REPORTING
Segment reporting was prepared according to CPC 22 (Segment Information), equivalent to IFRS 8, and is reported in relation to the business of the Company and its subsidiaries, identified based on their management structure and internal management information. The Company's Management considers the following segments: power distribution, power generation, power trading and others (including the holding). The Company is segmented according to its operation, which has different risks and compensation.
Segment information on September 30, 2010 and December 31, 2009 are presented below:
Distribution
Generation
Trading
Other
Eliminations
Consolidated 9/30/2010
Current assets Non-current assets Investments Property, plant and equipment Intangible assets Current liabilities Non-current liabilities Shareholders' equity
Distribution
Generation
Trading
Other
Eliminations
Consolidated 12/31/2009
Current assets Non-current assets Investments Property, plant and equipment Intangible assets Current liabilities Non-current liabilities Shareholders' equity
Segment reporting:
Cons olidated Consolidated Distribution OPERATIONAL REVENUE Billed supplies Unbilled s upplies Supply - Electric Power Construction revenue Other DEDUCTIONS TO REVENUE Billed sales - ICMS (State VAT) Consumer charges PIS (Tax on Revenues) COFINS (Tax on Revenues) Other NET OPERATIONAL REVENUE OPERATING EXPENSES AND COSTS Personnel Material Outsourced services Energy purchased Depreciation Provisions Construction cost Other Equity in the earnings of subsidiaries FINANCIAL INCOME Financial revenue Financial expenses OPERATING INCOME INCOME BEFORE TAXES Social Contribution Income tax NET INCOME 6,893,586 5,937,540 (36,491) 40,246 357,010 595,281 (2,420,821) (1,647,150) (397,673) (67,729) (306,625) (1,644) 4,472,765 (3,607,051) (162,353) (16,011) (219,682) (2,445,976) (216,195) (151,129) (357,010) (38,695) (164,571) 157,350 (321,921) 701,143 701,143 (62,553) (182,529) 456,061 Generation 263,493 259,046 4,447 (32,830) (10,394) (4,000) (18,429) (7) 230,663 (113,788) (14,827) (595) (11,160) (11,035) (46,204) (9,327) (20,640) (25,906) 5,021 (30,927) 90,969 90,969 (8,389) (22,764) 59,816 Trading 155,799 110,535 45,264 (22,672) (16,328) (896) (4,123) (1,325) 133,127 (115,743) (2,331) (9,183) (21,475) (81,475) (459) (820) 738 1,096 (358) 18,122 18,122 (1,595) (4,370) 12,157 Other (5,430) (2,846) (6) (2,067) (511) 528,225 790 839 (49) 523,585 523,585 523,585 Eliminations (61,068) (48,188) (12,880) (61,068) 61,068 60,798 270 (528,225) (24,859) 24,859 (528,225) (528,225) (528,225) 09/30/2010 7,251,810 5,937,540 (36,491) 361,639 357,010 632,112 (2,476,323) (1,663,478) (408,067) (72,625) (329,177) (2,976) 4,775,487 (3,780,944) (182,357) (25,795) (254,384) (2,477,688) (262,858) (160,456) (357,010) (60,396) (188,949) 139,447 (328,396) 805,594 805,594 (72,537) (209,663) 523,394 9/30/2009 Restated 6,789,491 5,658,747 (14,353) 270,285 381,813 492,999 (2,221,915) (1,531,200) (367,972) (59,077) (261,625) (2,041) 4,567,576 (3,858,988) (199,422) (15,545) (188,107) (2,536,175) (257,722) (217,611) (381,813) (62,593) (75,471) 121,782 (197,253) 633,117 633,117 (62,626) (259,161) 311,330
34.
On September 30,2010 the subsidiary Light SESA set up a provision of R$1,059 referring to the vesting period of the long-term incentive plan, in the modality phantom options incurred until the third quarter of 2010 against personnel expenses and a provision amounting to R$3,177 in the year of 2010.
35.
Revenues Sales of goods, products and services Other revenues Allowance/reversal of allowance for doubtful accounts Input acquired from third parties Costs of products, goods and services sold Material energy outsourced services other Gross value added Retentions Depreciation, amortization and depletion Net added value produced Added value received in transfers Equity income Financial income Total added value to distribute Distribution of added value Personnel Direct compensation Benefits Government Severance Fund for Employees (FGTS) Other Taxes, fees and contributions Federal State Municipal Third party capital remuneration Interest Rental Other Remuneration of own capital Dividends Retained earnings / accumulated losses for the year The notes are an integral part of the financial statements.
(2,580) (2,580) (2,580) (2,580) 528,873 527,921 952 526,293 526,293 2,681 2,426 147 108 169 169 49 49 523,394 523,394
36.
On November 3, 2010, ANEEL approved the definite amount for the Tariff Adjustment of Light SESA. The result ratified by ANEEL considers a Tariff Adjustment of 6.99%, which comprises two components: structural, corresponding to 8.31%; and financial, which will be valid up to October 2011, corresponding to 1.33% negative. Considering the removal of the financial component from Lights current tariffs, corresponding to 4.77%, this proposal represents an average tariff increase to final consumers of 2.20%. b) Option Exercise On October 7, 2010, Enlighted Partness Venture Capital LLC (ENLIGHTED) exercised the put option of its quotas in Luce Investment Fund (Luce Fund), to the Companhia Energtica de Minas Gerais CEMIG or to third party appointed by it, object of the Option Agreement for the Sale of Shares and other Covenants (Option) entered into on March 24, 2010 between CEMIG and ENLIGHTED. Luce Fund holds 75% of quotas in Luce Brasil Fundo de Investimento em Participaes which in turn holds, through Luce Empreendimentos e Participaes S.A. (LEPSA), 26,576,149 common shares issued by Light S.A., representing 13.03% of its voting capital. The exercise of the Option does not alter the validity of the shareholders agreement in force, entered into on December 30, 2009 and available on the website of the Brazilian Securities and Exchange Commission (CVM). c) Dividends paid At the Extraordinary General Meeting held on April 28, 2011, the payment of dividends was approved based on income determined on December 31, 2010, in the amount of R$350,979, and payment scheduled to May 18, 2011. d) Debentures issue In May 2011, Light SESA completed its 7th issue of simple, non-convertible into shares, unsecured debentures, totaling R$650,000, through public offering with restricted placement efforts, under the terms of CVM Rule 476, under a firm commitment basis. Debentures were issued on May 2, 2011, and funds were included in the cash on May 5, 2011. The remuneration was fixed at 100% of CDI rate + 1.35% annual spread, defined in a bookbuilding process, and interest will be paid in half-yearly installments and final maturity scheduled for May 2, 2016. In May 2011, Light Energia concluded its 1st issue of simple, non-convertible into shares, unsecured debentures, totaling R$170,000, through public offering with restricted placement efforts, under the terms of CVM Rule 476, under a firm commitment basis.
Debentures were issued on April 10, 2011, and funds were included in the cash on May 12, 2011. The remuneration was fixed at 100% of CDI rate + 1.45% annual spread, and interest will be paid in half-yearly installments and final maturity scheduled to April 10, 2016. e) Redentor Operation At the Extraordinary General Meeting held on April 28, 2011, the overall amount of annual compensation of the Companys Board of Directors and Board of the Executive Officers was approved to R$14,915 to be paid in 2011. f) Redentor Operation The Company announced through a Material Fact published on May 13, 2011 that Parati S.A Participaes em Ativos de Energia Eltrica (Parati), a closely-held company, acquired 58,671,565 common shares, representing 54.08% of the total capital stock of Redentor Energia S.A. (Redentor), an indirect shareholder of the Company. Said shares were held by Fundo de Investimento em Participaes PCP (FIP PCP).
BOARD OF DIRECTORS MEMBERS Aldo Floris Ana Marta Horta Veloso Djalma Bastos de Morais Raul Belens Jungmann Pinto Firmino Ferreira Sampaio Neto Luiz Carlos Costeira Urquiza Carlos Roberto Teixeira Junger Srgio Alair Barroso Maria Silvia Bastos Marques Carlos Alberto da Cruz Elvio Lima Gaspar FISCAL COUNCIL ALTERNATES Lauro Alberto de Luca Csar Vaz de Melo Fernandes Wilson Borrajo Cid Fernando Henrique Schuffner Neto Carlos Augusto Leone Piani Paulo Roberto Reckziegel Guedes Ricardo Simonsen Luiz Fernando Rolla Almir Jos dos Santos Carmen Lcia Claussen Kanter Joaquim Dias de Castro
MEMBERS Eduardo Grande Bittencourt (Chairman) Isabel da Silva Ramos Kemmelmeier (Member) Marcelo Lignani Siqueira (Member) Victor Adler (Member) Aristteles Luiz Menezes Vasconcellos Drummond (Member)
ALTERNATES Ricardo Genton Peixoto Ronald Gasto Andrade Reis Eduardo Gomes Santos Gabriel Agostini Ari Barcelos da Silva
BOARD OF EXECUTIVE OFFICERS Jerson Kelman Chief Executive Officer Joo Batista Zolini Carneiro Chief Financial and Investor Relations Officer Evandro Leite Vasconcelos Energy Officer Paulo Carvalho Filho Corporate Management Officer Ana Silvia Corso Matte Personnel and Legal Officer Jos Humberto Castro Distribution Officer Paulo Roberto Ribeiro Pinto New Business and Institutional Officer
CONTROLLERSHIP SUPERINTENDENCE Luciana Maximino Maia Controllership Superintendent CPF 144.021.098-50 CRC-RJ 091476/O-0 Suzanne Lloyd Gasparini Accountant Accounting Manager CPF 081.425.517-56 CRC-RJ 107359-0